Edgar Filing: American Airlines Group Inc.

Form 10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2015

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to

Commission file number 1-8400

American Airlines Group Inc.

(Exact name of registrant as specified in its charter)


Delaware		75-1825172
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
4333 Amon Carter Blvd., Fort Worth, Texas 76155		(817) 963-1234
(Address of principal executive offices, including zip code)		Registrant’s telephone number, including area code

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


		Name of Exchange on Which Registered
Common Stock, $0.01 par value per share		NASDAQ

Securities registered pursuant to Section 12(g) of the Act: None

Commission file number 1-2691

American Airlines, Inc.

(Exact name of registrant as specified in its charter)


Delaware		13-1502798
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
4333 Amon Carter Blvd., Fort Worth, Texas 76155		(817) 963-1234
(Address of principal executive offices, including zip code)		Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.


American Airlines Group Inc.	Yes þ	No ¨
American Airlines, Inc.	Yes þ	No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.


American Airlines Group Inc.	Yes ¨	No þ
American Airlines, Inc.	Yes ¨	No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


American Airlines Group Inc.	Yes þ	No ¨
American Airlines, Inc.	Yes þ	No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


American Airlines Group Inc.	Yes þ	No ¨
American Airlines, Inc.	Yes þ	No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.


American Airlines Group Inc.		¨
American Airlines, Inc.		þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.


American Airlines Group Inc.	þ Large Accelerated Filer	¨ Accelerated Filer	¨ Non-accelerated Filer	¨ Smaller Reporting Company
American Airlines, Inc.	¨ Large Accelerated Filer	¨ Accelerated Filer	þ Non-accelerated Filer	¨ Smaller Reporting Company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).


American Airlines Group Inc.	Yes ¨	No þ
American Airlines, Inc.	Yes ¨	No þ

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.


American Airlines Group Inc.	Yes þ	No ¨
American Airlines, Inc.	Yes þ	No ¨

As of February 19, 2016, there were 603,018,015 shares of American Airlines Group Inc. common stock outstanding. The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2015, was approximately $27 billion.

As of February 19, 2016, there were 1,000 shares of American Airlines, Inc. common stock outstanding, all of which were held by American Airlines Group Inc.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement related to American Airlines Group Inc.’s 2016 Annual Meeting of Stockholders, which proxy statement will be filed under the Securities Exchange Act of 1934 within 120 days of the end of American Airlines Group Inc.’s fiscal year ended December 31, 2015, are incorporated by reference into Part III of this Annual Report on Form 10-K.

American Airlines Group Inc.

American Airlines, Inc.

Form 10-K

Year Ended December 31, 2015

Table of Contents


		Page
PART I
Item 1.	Business		5
Item 1A.	Risk Factors		22
Item 1B.	Unresolved Staff Comments		44
Item 2.	Properties		45
Item 3.	Legal Proceedings		48
Item 4.	Mine Safety Disclosures		49

PART II
Item 5.	Market for American Airlines Group’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities		50
Item 6.	Selected Consolidated Financial Data		54
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		59
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		100
Item 8A.	Consolidated Financial Statements and Supplementary Data of American Airlines Group Inc.		103
Item 8B.	Consolidated Financial Statements and Supplementary Data of American Airlines, Inc.		172
Item 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure		229
Item 9A.	Controls and Procedures		229

PART III
Item 10.	Directors, Executive Officers and Corporate Governance		233
Item 11.	Executive Compensation		233
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		233
Item 13.	Certain Relationships and Related Transactions, and Director Independence		233
Item 14.	Principal Accountant Fees and Services		233

PART IV
Item 15.	Exhibits and Financial Statement Schedules		234
SIGNATURES			235

This combined Annual Report on Form 10-K is filed by American Airlines Group Inc. (formerly named AMR Corporation) (AAG) and its wholly-owned subsidiary American Airlines, Inc. (American). References in this Annual Report on Form 10-K to “we,” “us,” “our,” the “Company” and similar terms refer to AAG and its consolidated subsidiaries. As more fully described below, on December 9, 2013, a subsidiary of AMR Corporation merged with and into US Airways Group, Inc. (US Airways Group), which survived as a wholly-owned subsidiary of AAG (the Merger). On December 30, 2015, in order to simplify AAG’s internal corporate structure and as part of the integration efforts following the business combination of AAG and US Airways Group, AAG caused US Airways Group to be merged with and into AAG, with AAG as the surviving corporation, and, immediately thereafter, US Airways, Inc. (US Airways), a subsidiary of US Airways Group, merged with and into American, with American as the surviving corporation. As a result of the Merger, unless otherwise indicated, information in this Annual Report on Form 10-K regarding the Company’s consolidated results of operations includes the results of US Airways Group’s wholly-owned subsidiaries beginning on December 9, 2013, the effective date of the Merger. In addition, unless otherwise indicated, information in this Annual Report on Form 10-K regarding American’s consolidated results of operations includes the results of US Airways for the post-Merger period from December 9, 2013, which is the earliest date that American and US Airways were under common control, to December 31, 2013 and for the years ended December 31, 2014 and 2015. “AMR” or “AMR Corporation” refers to the Company during the period of time prior to its emergence from Chapter 11 and its acquisition of US Airways Group. References to “US Airways Group” and “US Airways” represent the entities during the period of time prior to December 30, 2015. References in this Annual Report on Form 10-K to “mainline” refer to the operations of American, as applicable, and exclude regional operations.

Note Concerning Forward-Looking Statements

Certain of the statements contained in this report should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “could,” “should,” “would,” “continue,” “seek,” “target,” “guidance,” “outlook,” “if current trends continue,” “optimistic,” “forecast” and other similar words. Such statements include, but are not limited to, statements about the benefits of the Merger, including future financial and operating results, our plans, objectives, expectations and intentions, and other statements that are not historical facts, such as, without limitation, statements that discuss the possible future effects of current known trends or uncertainties, or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. These forward-looking statements are based on our current objectives, beliefs and expectations, and they are subject to significant risks and uncertainties that may cause actual results and financial position and timing of certain events to differ materially from the information in the forward-looking statements. These risks and uncertainties include, but are not limited to, those described below under Part I, Item 1A. Risk Factors and the following: significant operating losses in the future; downturns in economic conditions that adversely affect our business; the impact of continued periods of high volatility in fuel costs, increased fuel prices and significant disruptions in the supply of aircraft fuel; competitive practices in the industry, including the impact of low cost carriers, airline alliances and industry consolidation; the challenges and costs of integrating operations and realizing anticipated synergies and other benefits of the Merger; costs of ongoing data security compliance requirements and the impact of any significant data security breach; our substantial indebtedness and other obligations and the effect they could have on our business and liquidity; an inability to obtain sufficient financing or other capital to operate successfully and in accordance with our current business plan; increased costs of financing, a reduction in the availability of financing and fluctuations in interest rates; the effect our high level of fixed obligations may have on our ability to fund general corporate requirements, obtain additional financing and respond to competitive developments and adverse economic and industry conditions; our significant pension and other postretirement benefit funding obligations; the impact of any failure to comply with the covenants contained in financing arrangements; provisions in credit card processing and other commercial agreements that may materially reduce our liquidity; the impact of union disputes, employee strikes and other labor-related disruptions; any inability to maintain labor costs at competitive levels; interruptions or disruptions in service at one or more of our hub airports; any inability

to obtain and maintain adequate facilities, infrastructure and slots to operate our flight schedule and expand or change our route network; our reliance on third-party regional operators or third-party service providers that have the ability to affect our revenue and the public’s perception about our services; any inability to effectively manage the costs, rights and functionality of third-party distribution channels on which we rely; extensive government regulation, which may result in increases in our costs, disruptions to our operations, limits on our operating flexibility, reductions in the demand for air travel, and competitive disadvantages; the impact of the heavy taxation on the airline industry; changes to our business model that may not successfully increase revenues and may cause operational difficulties or decreased demand; the loss of key personnel or inability to attract and retain additional qualified personnel; the impact of conflicts overseas, terrorist attacks and ongoing security concerns; the global scope of our business and any associated economic and political instability or adverse effects of events, circumstances or government actions beyond our control, including the impact of foreign currency exchange rate fluctuations and limitations on the repatriation of cash held in foreign countries; the impact of environmental and noise regulation; the impact associated with climate change, including increased regulation to reduce emissions of greenhouse gases; our reliance on technology and automated systems and the impact of any failure of these technologies or systems; challenges in integrating our computer, communications and other technology systems; losses and adverse publicity stemming from any accident involving any of our aircraft or the aircraft of our regional or codeshare operators; delays in scheduled aircraft deliveries, or other loss of anticipated fleet capacity, and failure of new aircraft to perform as expected; our dependence on a limited number of suppliers for aircraft, aircraft engines and parts; the impact of changing economic and other conditions beyond our control, including global events that affect travel behavior such as an outbreak of a contagious disease, and volatility and fluctuations in our results of operations due to seasonality; the effect of a higher than normal number of pilot retirements and a potential shortage of pilots; the impact of possible future increases in insurance costs or reductions in available insurance coverage; the effect on our financial position and liquidity of being party to or involved in litigation; an inability to use net operating losses (NOLs) carried over from prior taxable years (NOL Carryforwards); any impairment in the amount of goodwill we recorded as a result of the application of the acquisition method of accounting and an inability to realize the full value of AAG’s and American’s respective intangible or long-lived assets and any material impairment charges that would be recorded as a result; price volatility of our common stock; the effects of our capital deployment program and the limitation, suspension or discontinuation of our share repurchase program or dividend payments thereunder; delay or prevention of stockholders’ ability to change the composition of our Board of Directors and the effect this may have on takeover attempts that some of our stockholders might consider beneficial; the effect of provisions of our Restated Certificate of Incorporation (the Certificate of Incorporation) and Amended and Restated Bylaws (the Bylaws) that limit ownership and voting of our equity interests, including our common stock; the effect of limitations in our Certificate of Incorporation on acquisitions and dispositions of our common stock designed to protect our NOL Carryforwards and certain other tax attributes, which may limit the liquidity of our common stock; the limitations of our historical consolidated financial information, which is not directly comparable to our financial information for prior or future periods; other economic, business, competitive, and/or regulatory factors affecting our business, including those set forth in this Annual Report on Form 10-K (especially in Part I, Item 1A. Risk Factors and Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations) and in our other filings with the Securities and Exchange Commission (the SEC), and other risks and uncertainties listed from time to time in our filings with the SEC.

All of the forward-looking statements are qualified in their entirety by reference to the factors discussed in Part I, Item 1A. Risk Factors and elsewhere in this report. There may be other factors of which we are not currently aware that may affect matters discussed in the forward-looking statements and may also cause actual results to differ materially from those discussed. We do not assume any obligation to publicly update or supplement any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting such statements other than as required by law. Forward-looking statements speak only as of the date of this Annual Report on Form 10-K or as of the dates indicated in the statements.

PART I

ITEM 1. BUSINESS

Overview

American Airlines Group Inc. (AAG), a Delaware corporation, is a holding company and its principal, wholly-owned subsidiaries are American Airlines, Inc. (American), Envoy Aviation Group Inc. (Envoy), Piedmont Airlines, Inc. (Piedmont), and PSA Airlines, Inc. (PSA). AAG was formed in 1982 under the name AMR Corporation (AMR) as the parent company of American, which was founded in 1934. On December 9, 2013, a subsidiary of AMR merged with and into US Airways Group, Inc. (US Airways Group), a Delaware corporation, which survived as a wholly-owned subsidiary of AAG, and AAG emerged from Chapter 11. Upon closing of the Merger and emergence from Chapter 11, AMR changed its name to American Airlines Group Inc. On December 30, 2015, in order to simplify AAG’s internal corporate structure and as part of the integration efforts following the business combination of AAG and US Airways Group, AAG caused US Airways Group to be merged with and into AAG, with AAG as the surviving corporation, and, immediately thereafter, US Airways, Inc. (US Airways), a Delaware corporation and wholly-owned subsidiary of US Airways Group, merged with and into American, with American as the surviving corporation. As a result of the merger of US Airways and American, US Airways transferred all of its assets, liabilities and off-balance sheet commitments to American. For financial reporting purposes, this transaction constituted a transfer of assets between entities under common control and was accounted for at historical cost. Certain employees of American continue to work under the terms of separate collective bargaining agreements that were applicable to them as employees of US Airways. Virtually all of AAG’s operations fall within the airline industry.

AAG’s and American’s principal executive offices are located at 4333 Amon Carter Boulevard, Fort Worth, Texas 76155. AAG’s and American’s telephone number is 817-963-1234, and their Internet address is www.aa.com. Information contained on AAG’s and American’s website is not and should not be deemed a part of this report or any other report or filing filed with or furnished to the SEC.

Airline Operations

As noted above, AAG is a holding company whose primary business activity is the operation of a major network carrier through its principal wholly-owned mainline operating subsidiary, American.

Together with our wholly-owned regional airline subsidiaries and third-party regional carriers operating as American Eagle, our airline operates an average of nearly 6,700 flights per day to nearly 350 destinations in more than 50 countries from our hubs in Charlotte, Chicago, Dallas/Fort Worth (DFW), Los Angeles (LAX), Miami, New York, Philadelphia, Phoenix and Washington, D.C. In 2015, approximately 201 million passengers boarded our mainline and regional flights. As of December 31, 2015, we operated 946 mainline aircraft and are supported by our regional airline subsidiaries and third-party regional carriers, which operated an additional 587 regional aircraft.

American is a founding member of the oneworld alliance, whose members and members-elect serve nearly 1,000 destinations with 14,250 daily flights to 150 countries.

Our cargo division provides a wide range of freight and mail services, with facilities and interline connections available across the globe.

See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – “American Airlines Group – Year in Review,” “AAG’s Results of Operations” and “American’s Results of Operations” for further discussion of AAG’s and American’s operating results and operating performance. Also, see Note 17 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 15 to American’s

Consolidated Financial Statements in Part II, Item 8B for information regarding our operating segments and operating revenue in principal geographic areas.

Regional Operations

Our wholly-owned regional carriers, Envoy, Piedmont and PSA, as well as certain third-party regional carriers have arrangements with us to provide regional feed under the trade name “American Eagle.” American Eagle carriers are an integral component of our operating network. We rely heavily on feeder traffic from these regional carriers, which carry passengers to our hubs from low-density markets that are uneconomical for us to serve with large jets. In addition, regional carriers offer complementary service in our existing mainline markets by operating flights during off-peak periods between mainline flights. During 2015, approximately 54 million passengers boarded our regional carriers’ planes, approximately 47% of whom connected to or from our mainline flights. Of these passengers, approximately 24 million were enplaned by our wholly-owned regional carriers and approximately 30 million were enplaned by third-party regional carriers operating under capacity purchase agreements.

The American Eagle arrangements are principally in the form of capacity purchase agreements. The capacity purchase agreements provide that all revenues, including passenger, mail and freight revenues, go to us. In return, we agree to pay predetermined fees to these airlines for operating an agreed-upon number of aircraft, without regard to the number of passengers on board. In addition, these agreements provide that we will reimburse 100% of certain variable costs, such as airport landing fees and passenger liability insurance. We control marketing, scheduling, ticketing, pricing and seat inventories. A very small number of regional aircraft are operated for us under prorate agreements, under which the regional carriers receive a prorated share of ticket revenue and pay certain service fees to us. The prorate carriers are responsible for all costs incurred operating the applicable aircraft. All American Eagle carriers have logos, service marks, aircraft paint schemes and uniforms similar to our mainline operations.

Chapter 11 Reorganization

On November 29, 2011 (the Petition Date), AMR Corporation, its principal subsidiary, American, and certain of AMR’s other direct and indirect domestic subsidiaries (collectively, the Debtors), filed voluntary petitions for relief (the Chapter 11 Cases) under Chapter 11 of the United States Bankruptcy Code (the Bankruptcy Code) in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court). On October 21, 2013, the Bankruptcy Court entered an order (the Confirmation Order) approving and confirming the Debtors’ fourth amended joint plan of reorganization (as amended, the Plan).

On December 9, 2013 (the Effective Date), the Debtors consummated their reorganization pursuant to the Plan, principally through the transactions contemplated by an Agreement and Plan of Merger (as amended, the Merger Agreement), dated as of February 13, 2013, by and among AMR, AMR Merger Sub, Inc. (Merger Sub) and US Airways Group, pursuant to which Merger Sub merged with and into US Airways Group (the Merger), with US Airways Group surviving as a wholly-owned subsidiary of AMR following the Merger.

In connection with the Chapter 11 Cases, trading in AMR’s common stock and certain debt securities on the New York Stock Exchange (NYSE) was suspended on January 5, 2012, and AMR’s common stock and such debt securities were delisted from the NYSE on January 30, 2012. On January 5, 2012, AMR’s common stock began trading under the symbol “AAMRQ” (CUSIP 001765106) on the OTCQB marketplace. Pursuant to the Plan, on the Effective Date (i) all existing shares of AAG’s old common stock formerly traded under the symbol “AAMRQ” were canceled and (ii) the Company was authorized to issue up to approximately 544 million shares of common stock, par value $0.01 per share, of AAG (AAG Common Stock) by operation of the Plan (excluding shares of AAG Common Stock issuable pursuant to the Merger Agreement). On the Effective Date, the AAG Common Stock was listed on the NASDAQ Global Select Market under the symbol “AAL,” and AAMRQ ceased trading on the OTCQB marketplace.

Upon emergence from Chapter 11, AAG issued approximately 53 million shares of AAG Common Stock to AMR’s old equity holders and certain of the Debtors’ employees, and issued 168 million shares of AAG Series A Convertible Preferred Stock, par value $0.01 per share (the AAG Series A Preferred Stock), which was mandatorily convertible into new AAG Common Stock during the 120-day period after the Effective Date, to certain creditors and employees of the Debtors (including shares deposited in the Disputed Claims Reserve (as defined in the Plan)). In accordance with the terms of the Plan, former holders of AMR common stock (previously traded under the symbol “AAMRQ”) received, for each share of AMR common stock, an initial distribution of approximately 0.0665 shares of the AAG Common Stock as of the Effective Date. Following the Effective Date, former holders of AMR common stock and those deemed to be treated as such in connection with the elections made pursuant to the Plan have received through December 31, 2015, additional aggregate distributions of shares of AAG Common Stock of approximately 0.6776 shares of AAG Common Stock for each share of AMR common stock previously held, and may continue to receive additional distributions. As of the Effective Date, the adjusted total Double-Dip General Unsecured Claims (as defined in the Plan) were approximately $2.5 billion and the Allowed Single-Dip General Unsecured Claims (as defined in the Plan) were approximately $2.5 billion. The Disputed Claims Reserve established under the Plan was initially issued 30.4 million shares, which shares are reserved for distributions to holders of disputed Single-Dip Unsecured Claims (Single-Dip Equity Obligations) whose claims ultimately become allowed as well as to certain AMR labor groups and employees who received a deemed claim amount based upon a fixed percentage of the distributions to be made to general unsecured claimholders. As of December 31, 2015, the Disputed Claims Reserve held 25.3 million shares of AAG Common Stock pending distribution of those shares in accordance with the Plan.

See Part II, Item 5. Market for American Airlines Group’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities, Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Note 2 and Note 4 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 2 and Note 4 to American’s Consolidated Financial Statements in Part II, Item 8B for further information regarding the Chapter 11 Cases, the Merger and the Disputed Claims Reserve.

Merger

Pursuant to the Merger Agreement and consistent with the Plan, each share of common stock, par value $0.01 per share, of US Airways Group (the US Airways Group Common Stock) was converted into the right to receive one share of AAG Common Stock. The aggregate number of shares of AAG Common Stock issuable in the Merger to holders of US Airways Group equity instruments (including stockholders, holders of convertible notes, optionees, and holders of restricted stock units (RSUs)) represented 28% of the diluted equity ownership of AAG. The remaining 72% diluted equity ownership in AAG (up to approximately 544 million shares) was or is distributable, pursuant to the Plan (see “Chapter 11 Reorganization” above), to stakeholders, labor unions, certain employees of AMR and the other Debtors, and former holders of AMR common stock (previously traded under the symbol “AAMRQ”) such that the aggregate number of shares of AAG Common Stock issuable under the Plan will not exceed 72% of the diluted equity ownership of AAG as of the time of the Merger.

In connection with the completion of the Merger, the NYSE suspended trading in the US Airways Group Common Stock prior to the opening of the market on December 9, 2013. The US Airways Group Common Stock was delisted from the NYSE and registration of the US Airways Group Common Stock under Section 12(b) of the Exchange Act was terminated.

See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – “American Airlines Group – Year in Review,” Management’s Discussion and Analysis of Financial Condition and Results of Operations – “AAG’s Results of Operations,” Note 2 and Note 4 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 2 and Note 4 to American’s Consolidated Financial Statements in Part II, Item 8B for further information regarding the Chapter 11 Cases and the Merger.

The U.S. Airline Industry

In 2015, the U.S. airline industry benefited significantly from lower fuel prices. However, this benefit was offset in part by a decline in revenues driven by reduced yields.

Jet fuel prices closely follow the price of Brent crude oil. Oil prices declined significantly throughout 2015, and in December, the price of Brent crude oil fell below $40 a barrel for the first time since 2009. On average, the price of Brent crude oil per barrel was approximately 47% lower in 2015 as compared to 2014. The average daily spot price for Brent crude oil during 2015 was $52 per barrel as compared to an average daily spot price of $99 per barrel during 2014. On a daily basis, Brent crude oil prices fluctuated during 2015 between a high of $66 per barrel to a low of $35 per barrel, and closed the year on December 31, 2015 at $37 per barrel.

With respect to revenue, in its most recent data available through the third quarter of 2015, Airlines for America, the trade association for U.S. airlines, reported U.S. industry passenger revenues and yields declined as compared to 2014. Additionally, domestic markets outperformed international markets (Atlantic, Pacific and Latin America) in both yield and overall revenue performance.

While jet fuel prices have declined year-over-year as described above, uncertainty exists regarding the economic conditions driving these declines. See Part I, Item 1A. Risk Factors – “Downturns in economic conditions adversely affect our business” and “Our business is dependent on the price and availability of aircraft fuel. Continued periods of high volatility in fuel costs, increased fuel prices and significant disruptions in the supply of aircraft fuel could have a significant negative impact on our operating results and liquidity.”

Competition

The markets in which we operate are highly competitive. Price competition occurs on a market-by-market basis through price discounts, changes in pricing structures, fare matching, target promotions and loyalty program initiatives. On most of our domestic non-stop routes, we currently face competing service from at least one, and sometimes more than one, domestic airline, including: Alaska Airlines, Allegiant Air, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, Southwest Airlines, Spirit Airlines, United Airlines and Virgin America. Competition is even greater between cities that require a connection, where the major airlines compete via their respective hubs. In addition, we face competition on some of our connecting routes from airlines operating point-to-point service on such routes. We also compete with all-cargo and charter airlines and, particularly on shorter segments, ground and rail transportation.

On all of our routes, pricing decisions are affected, in large part, by the need to meet competition from other airlines. Airlines typically use discount fares and other promotions to stimulate traffic during normally slack travel periods, when they begin service to new cities or when they have excess capacity, to generate cash flow, to maximize revenue per available seat mile (ASM) and to establish, increase or preserve market share. Discount and promotional fares are generally non-refundable and may be subject to various restrictions such as minimum stay requirements, advance ticketing, limited seating and change fees. We have often elected to match discount or promotional fares initiated by other air carriers in certain markets in order to compete in those markets. Most airlines will quickly match price reductions in a particular market. In addition, low-fare, low-cost carriers, such as Southwest Airlines and Jet Blue Airways, and so-called ultra low-cost carriers, such as Allegiant Air, Frontier Airlines and Spirit Airlines, compete in many of the markets in which we operate and competition from these carriers is increasing. For example, at our DFW hub and in a number of other markets we face more competition (as measured by ASMs) from ultra low-cost carriers than from major network carriers.

In addition to price competition, airlines compete for market share by increasing the size of their route system and the number of markets they serve. The American Eagle regional carriers increase the number of markets we serve by flying to lower demand markets and providing connections at our hubs. Many of our competitors also own or have agreements with regional airlines which provide similar services at their hubs and other locations.

We also compete on the basis of scheduling (frequency and flight times), availability of nonstop flights, on-time performance, type of equipment, cabin configuration, amenities provided to passengers, loyalty programs, the automation of travel agent reservation systems, onboard products, markets served and other services. We compete with both major network airlines and low-cost carriers throughout our network.

In addition to our extensive domestic service, we provide international service to Central and South America, Asia, Europe and Australia. Revenues from foreign operations (flights serving international destinations) were approximately 30% of our total operating revenues in 2015. In 2015, we expanded our global footprint by adding 38 new routes, including 20 international and 18 domestic. Notable new routes include DFW to Beijing, LAX to Sydney and LAX to Mexico City. In providing international air transportation, we compete with U.S. airlines to provide scheduled passenger and cargo service between the U.S. and various overseas locations, foreign investor-owned airlines, and foreign state-owned or state-affiliated airlines, including carriers based in the Middle East, the three largest of which we believe benefit from significant government subsidies.

Agreements with Other Airlines

In general, carriers that have the greatest ability to seamlessly connect passengers to and from markets beyond the nonstop city pair have a competitive advantage. In some cases, however, foreign governments limit U.S. air carriers’ rights to carry passengers beyond designated gateway cities in foreign countries. To improve access to each other’s markets, various U.S. and foreign air carriers, including American, have established marketing relationships with other airlines and rail companies. American currently has marketing relationships with Air Berlin, Air Tahiti Nui, Alaska Airlines, British Airways, Cape Air, Cathay Pacific, Dragonair, EL AL, Etihad Airways, Fiji Airways, Finnair, Gulf Air, Hainan Airlines, Hawaiian Airlines, Iberia, Interjet, Japan Airlines, Jet Airways, Jetstar Group (includes Jetstar Airways and Jetstar Japan), Korean Air, LATAM (includes LAN Airlines, LAN Argentina, LAN Colombia, LAN Ecuador, LAN Peru, TAM Airlines and TAM Mercosur), Malaysia Airlines, Niki Airlines, Qantas Airways, Qatar Airways, Royal Jordanian, S7 Airlines, Seaborne Airlines and WestJet.

American is also a founding member of the oneworld alliance, which includes Air Berlin, British Airways, Cathay Pacific Airways, Finnair, Iberia, Japan Airlines, LAN Airlines, Malaysia Airlines, Qantas Airways, Qatar Airways, Royal Jordanian, S7 Airlines, SriLankan Airlines and TAM Airlines. The oneworld alliance links the networks of the member carriers to enhance customer service and smooth connections to the destinations served by the alliance, including linking the carriers’ loyalty programs and access to the carriers’ airport lounge facilities. Together, oneworld members and members-elect serve nearly 1,000 destinations with 14,250 daily flights to 150 countries.

American is party to antitrust-immunized cooperation agreements with British Airways, Iberia, Finnair, Royal Jordanian, Japan Airlines, LAN Airlines and LAN Peru. American has also established joint business agreements (JBAs) with British Airways, Iberia and Finnair and separately Japan Airlines that enable the carriers to cooperate on flights between particular destinations and allow pooling and sharing of certain revenues and costs, enhanced loyalty program reciprocity and cooperation in other areas. American and its joint business partners received regulatory approval to enter into these JBAs. In addition, American applied for regulatory approval to enter into a JBA with Qantas Airways and has or will be applying for regulatory approval of a JBA with LATAM Airlines Group air carriers in the relevant jurisdictions affected by the JBA.

Industry Regulation and Airport Access

General

Our airlines are subject to extensive domestic and international regulatory requirements. The Airline Deregulation Act of 1978, as amended, eliminated most domestic economic regulation of passenger and freight transportation. However, the U.S. Department of Transportation (DOT) and the Federal Aviation Administration (FAA) still exercise significant regulatory authority over air carriers. The DOT maintains jurisdiction over the

approval of domestic and international codeshare agreements, international route authorities, and consumer protection and competition matters, such as advertising, denied boarding compensation and baggage liability.

The FAA regulates significant aspects of our business, primarily in the areas of flight operations, maintenance, and other operational and safety areas. Pursuant to these regulations, our airline subsidiaries have FAA-approved maintenance programs for each type of aircraft they operate. The programs provide for the ongoing maintenance of such aircraft, ranging from routine inspections to unscheduled repairs and comprehensive scheduled overhauls. FAA requirements cover, among other things, required technology and necessary onboard equipment, systems, procedures and training necessary to ensure continuous airworthiness of our fleet of aircraft, safety measures and equipment, advanced navigation and communication gear, advanced collision avoidance and position reporting systems, airborne windshear avoidance systems, noise abatement standards, other environmental concerns, fuel tank inerting, crew scheduling limitations and experience requirements, and many other technical aspects of airline operations. We are also obligated to comply with various airworthiness directives, service bulletins and other requirements designed to safely correct known issues with aircraft or major components that are discovered after original type certification or manufacture. Some of these directives require us to perform significant maintenance and engineering work and to incur substantial additional expenses. Based on the current known requirements and implementation schedules, we expect to remain in full compliance with these ongoing airworthiness requirements. Our failure to timely comply with these requirements has in the past, and could in the future, result in fines and other enforcement actions by the FAA or other regulators. The FAA also operates the air traffic control (ATC) system in the United States.

The FAA imposes stringent and complicated mandatory rest requirements for pilots, which are in addition to other limitations on allowable pilot duty times. The FAA also recently implemented rules that increase minimum qualifications for pilots to operate commercial aircraft. These requirements and rules have increased our costs and added complication to our crew scheduling.

Airlines are obligated to collect a federal excise tax, commonly referred to as the “ticket tax,” on domestic and international air transportation. Airlines collect the ticket tax, along with certain other U.S. and foreign taxes and user fees on air transportation, and pass along the collected amounts to the appropriate governmental agencies. Although these taxes are not our operating expenses, they represent an additional cost to our customers. Similarly, the U.S. Department of Agriculture’s Animal Plant and Health Inspection Service very recently increased the fees we must pay for arriving international flights, and for certain other related government services, which will increase our incremental costs of providing cargo services. See “Industry Regulation and Airport Access – Security,” below for a discussion of passenger fees.

Most major U.S. airports impose a passenger facility charge (PFC). The ability of airports to increase this charge (and the ability of airlines to contest such increases) is restricted by federal legislation, DOT regulations and judicial decisions. We and other airlines may be unable to recover all of these additional charges from passengers through increased fares. The current cap on the PFC is $4.50 per passenger, but the industry has faced repeated efforts in Congress to raise the cap to a higher level.

DOT consumer rules that took effect in 2010 require procedures for customer handling during long onboard delays, including additional reporting requirements for airlines, that have increased the cost of airline operations and reduced revenues. The DOT has been aggressively investigating alleged violations of these rules. In addition, the DOT finalized a second set of rules that further regulate airline interactions with passengers through the reservations process, at the airport and on board the aircraft. These rules require airlines to display all fares in an “all in” basis, with the price of the air travel and all taxes and government imposed fees rolled into the displayed fare. Enhanced disclosure of ancillary fees such as baggage fees is also required. Other rules apply to post-ticket purchase price increases and an expansion of tarmac delay regulations to international carriers. A third rulemaking that would further regulate consumer interaction with airlines is pending before the DOT, with a final rule expected in 2016.

The DOT has continued its efforts to further regulate airlines through increased data reporting requirements, expansion of the Air Carrier Access Act and greater oversight of the methods airlines use to describe and sell air transportation and other products and services. Each additional regulation or other form of regulatory oversight increases costs and adds greater complexity to our operation. In this environment, no assurance can be given that compliance with these new rules, anticipated rules or other forms of regulatory oversight from the Department of Justice (DOJ), the FAA or other regulatory bodies, will not have a material adverse effect on our business.

Among its regulatory responsibilities, the DOT also enforces equal access to air transportation for disabled passengers. Over time, a number of carriers, including American, have entered into consent orders with the DOT over their handling of disabled passengers. The DOT has been aggressive in prosecuting disability violations and seeks large penalties. We expect to see continued DOT emphasis in this area through both regulation and enforcement.

The DOT and the Antitrust Division of the DOJ have jurisdiction over airline antitrust matters. The U.S. Postal Service has jurisdiction over certain aspects of the transportation of mail and related services. Labor relations in the air transportation industry are regulated under the Railway Labor Act, which vests in the National Mediation Board (NMB) certain functions with respect to disputes between airlines and labor unions relating to union representation and collective bargaining agreements (CBAs). In addition, as a result of heightened levels of concern regarding data privacy, we are subject to an increasing number of domestic and foreign laws regarding the privacy and security of passenger and employee data.

International

International air transportation is subject to extensive government regulation. Our operating authority in international markets is subject to aviation agreements between the U.S. and the respective countries or governmental authorities, such as the European Union (EU), and in some cases, fares and schedules require the approval of the DOT and/or the relevant foreign governments. Moreover, alliances with international carriers may be subject to the jurisdiction and regulations of various foreign agencies. Bilateral and multilateral agreements among the U.S. and various foreign governments of countries we serve are periodically subject to renegotiation. Changes in U.S. or foreign government aviation policies could result in the alteration or termination of such agreements, diminish the value of route authorities, slots or other assets located abroad, or otherwise adversely affect our international operations. The U.S. government has negotiated “open skies” agreements with many countries, which allow unrestricted route authority access between the U.S. and the foreign markets. While the U.S. has worked to increase the number of countries with which open skies agreements are in effect, a number of important markets to us do not have open skies agreements, including China, Hong Kong and Mexico. In addition, at some foreign airports, an air carrier needs slots and other facilities before the air carrier can introduce new service or increase existing service. The availability of slots is not assured, and our inability to obtain and retain needed slots and facilities could therefore inhibit our efforts to compete in certain international markets. See “Industry Regulation and Airport Access – Airport Access and Operations,” below and Part I, Item 1A. Risk Factors – “If we are unable to obtain and maintain adequate facilities and infrastructure throughout our system and, at some airports, adequate slots, we may be unable to operate our existing flight schedule and to expand or change our route network in the future, which may have a material adverse impact on our operations” for additional information.

Security

The Aviation and Transportation Security Act (the Aviation Security Act) was enacted in November 2001. Under the Aviation Security Act, substantially all aspects of civil aviation security screening were federalized and a new Transportation Security Administration (TSA) was created under the DOT. The TSA was then transferred to the Department of Homeland Security pursuant to the Homeland Security Act of 2002. The Aviation Security Act, among other matters, mandates; improved flight deck security; carriage of federal air marshals at no charge; enhanced security screening of passengers, baggage, cargo, mail, employees and vendors;

enhanced security training; fingerprint-based background checks of all employees and vendor employees with access to secure areas of airports pursuant to regulations issued in connection with the Aviation Security Act; and the provision of certain passenger data to the U.S. Customs and Border Protection Agency. Funding for the TSA is provided by a combination of air carrier fees, passenger fees and taxpayer monies. To help finance the cost of aviation security, air carriers are required to collect and remit to the TSA a passenger security fee of $5.60 per one-way trip and not more than $11.20 per round trip on qualifying air transportation sold.

Implementation of and compliance with the requirements of the Aviation Security Act have resulted and will continue to result in increased costs for us and our passengers and have resulted and will likely continue to result in service disruptions and delays. As a result of competitive pressure, we and other airlines may be unable to recover all of these additional security costs from passengers through increased fares. In addition, we cannot forecast what new security and safety requirements may be imposed in the future or the costs or financial impact of complying with any such requirements.

Airline Fares

Airlines are permitted to establish their own domestic fares without governmental regulation. The DOT maintains authority over certain international fares, rates and charges, but applies this authority on a limited basis. In addition, international fares and rates are sometimes subject to the jurisdiction of the governments of the foreign countries which we serve. While air carriers are required to file and adhere to international fare and rate tariffs, substantial commissions, fare overrides and discounts to travel agents, brokers and wholesalers characterize many international markets.

Airport Access and Operations

Domestically, any U.S. airline authorized by the DOT is generally free to operate scheduled passenger service between any two points within the U.S. and its territories, with the exception of certain airports that require landing and take off rights and authorizations (slots) and other facilities, and certain airports that impose geographic limitations on operations or curtail operations based on the time of day. Operations at four major domestic airports and certain foreign airports we serve are regulated by governmental entities through allocations of slots or similar regulatory mechanisms which limit the rights of carriers to conduct operations at those airports. Each slot represents the authorization to land at or take off from the particular airport during a specified time period. In addition to slot restrictions, operations at LaGuardia Airport (LGA) and Ronald Reagan Washington National Airport (DCA) are also limited based on the stage length of the flight.

In the U.S., the FAA currently regulates the allocation of slots, slot exemptions, operating authorizations, or similar capacity allocation mechanisms at DCA in Washington, D.C. and three New York City airports: Newark Liberty International Airport, John F. Kennedy International Airport (JFK) and LGA. There is currently an open Notice of Proposed Rulemaking concerning the management and use of slots at the three New York City airports. Our operations at DCA and those New York City airports generally require the allocation of slots or analogous regulatory authorities. Similarly, our operations at Frankfurt, London, Paris and other international airports outside the U.S. are regulated by local slot authorities pursuant to the International Air Transport Association’s Worldwide Scheduling Guidelines (WSG) and applicable local law. We currently have sufficient slots or analogous authorizations to operate our existing flights and we have generally, but not always, been able to obtain the rights to expand our operations and to change our schedules. There is no assurance that we will be able to obtain sufficient slots or analogous authorizations in the future because, among other reasons, such allocations are often sought after by other airlines and are subject to changes in governmental policies.

In connection with the settlement of litigation relating to the Merger brought by the DOJ and certain states, we entered into settlement agreements that provided for certain asset divestitures, including 52 slot pairs at DCA, 17 slot pairs at LGA and gates and related ground facilities necessary to operate those slot pairs, and two gates at each of Boston Logan International Airport, Chicago O’Hare International Airport (ORD), Dallas Love Field

Airport (DAL), LAX and Miami International Airport. The settlement agreements also require us to maintain certain hub operations and continue to provide service to certain specified communities for limited periods of time. In addition, we entered into a related settlement with the DOT related to small community service from DCA. Further, as a consequence of the Merger clearance process in the EU, we made one pair of London Heathrow slots available for use by another carrier and, along with our JBA partners, we made one pair of London Heathrow slots available to competitors for use for up to six years in different markets.

Our ability to provide service can also be impaired at airports, such as ORD and LAX, where the airport gate and other facilities are inadequate to accommodate all of the service that we would like to provide.

The DOT allows local airport authorities to implement procedures designed to abate special noise problems, provided such procedures do not unreasonably interfere with interstate or foreign commerce or the national transportation system. Certain locales, including Boston, Washington D.C., Chicago, San Diego and San Francisco, among others, have established airport restrictions to limit noise, including restrictions on aircraft types to be used and limits on the number of hourly or daily operations or the time of these operations. In some instances, these restrictions have caused curtailments in service or increases in operating costs, and these restrictions could limit the ability of our airline subsidiaries to expand their operations at the affected airports. Authorities at other airports may adopt similar noise regulations. We are continuing to see an increase in these issues throughout the country. See “Industry Regulation and Airport Access – Environmental Matters,” below.

Civil Reserve Air Fleet

We participate in the Civil Reserve Air Fleet (CRAF) program, which is a voluntary program administered by the U.S. Air Force Air Mobility Command. The General Services Administration of the U.S. Government requires that airlines participate in the CRAF program in order to receive U.S. Government business. We are reimbursed at compensatory rates if aircraft are activated under the CRAF program or when participating in Department of Defense business. If a substantial number of our aircraft are activated for operation under the CRAF program at a time of war or other national emergency, our business operations and financial condition may be adversely affected. In January 2014, the U.S. Air Force proposed significant changes to the CRAF program which have not yet taken effect. Together with other industry participants, we are working with the U.S. Air Force to address our concerns with the new proposals.

Environmental Matters

Environmental and noise regulation. The airline industry is subject to various laws and government regulations concerning environmental matters in the U.S. and other countries. U.S. federal laws that have a particular impact on our operations include the Airport Noise and Capacity Act of 1990 (ANCA), the Clean Air Act (CAA), the Resource Conservation and Recovery Act, the Clean Water Act, the Safe Drinking Water Act, and the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or the Superfund Act). The U.S. Environmental Protection Agency (EPA) and other federal agencies have been authorized to promulgate regulations that have an impact on our operations. In addition to these federal activities, various states have been delegated certain authorities under the aforementioned federal statutes. Many state and local governments have adopted environmental laws and regulations which are similar to or stricter than federal requirements.

The ANCA recognizes the rights of airport operators with noise problems to implement local noise abatement programs so long as they do not interfere unreasonably with interstate or foreign commerce or the national air transportation system. Authorities in several cities have promulgated aircraft noise reduction programs, including the imposition of nighttime curfews. The ANCA generally requires FAA approval of local noise restrictions on aircraft. While we have had sufficient scheduling flexibility to accommodate local noise restrictions imposed to date, our operations could be adversely affected if locally-imposed regulations become more restrictive or widespread.

The environmental laws to which we are subject include those related to responsibility for potential soil and groundwater contamination. We are conducting investigation and remediation activities to address soil and groundwater conditions at several sites, including airports and maintenance bases. We anticipate that the ongoing costs of such activities will not have a material impact on our operations. In addition, we have been named as a potentially responsible party (PRP) at certain Superfund sites. Our alleged volumetric contributions at such sites are relatively small in comparison to total contributions of all PRPs; we anticipate that any future payments of costs at such sites will not have a material impact on our operations.

Climate change regulation. Many aspects of our operations are subject to increasingly stringent environmental regulations and concerns about climate change and greenhouse gas (GHG) emissions. For example, the EU has established the Emissions Trading Scheme (ETS) to regulate GHG emissions in the EU. The EU adopted a directive in 2008 under which each EU member state is required to extend the ETS to aviation operations. This directive would have required us, beginning in 2012, to annually submit emission allowances in order to operate flights to and from airports in the European Economic Area (EEA), including flights between the U.S. and EU member states. However, in an effort to allow the International Civil Aviation Organization (ICAO) time to propose an alternate scheme to manage global aviation emissions, in April 2013, the EU suspended for one year the ETS’ application to flights entering and departing the EEA, limiting its application, for flights flown in 2012, to intra-EEA flights only. In October 2013, the ICAO Assembly adopted a resolution calling for the development through ICAO of a global, market-based scheme for aviation GHG emissions, to be finalized in 2016 and implemented in 2020. Subsequently, the EU has amended the EU ETS so that the monitoring, reporting and submission of allowances for aviation GHG emissions will continue to be limited to only intra-EEA flights through 2016, at which time the EU will evaluate the progress made by ICAO and determine what, if any, measures to take related to aviation GHG emissions from 2017 onwards. The U.S. enacted legislation in November 2012 which encourages the DOT to seek an international solution through ICAO and that will allow the U.S. Secretary of Transportation to prohibit U.S. airlines from participating in the ETS. The effort currently underway through ICAO to reach a global agreement on measures to manage international aviation GHG emission growth could significantly impact our business, particularly to the extent that any final agreement may emphasize a collective cost sharing approach for industry emissions growth over a cost approach based on individual carrier contribution to emission growth.

In addition, in December 2015, at the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC’s COP21), over 190 countries, including the United States, reached an agreement to reduce global GHG emissions. While there is no express reference to aviation in this international agreement, to the extent the United States and other countries implement this agreement, either with respect to the aviation industry or with respect to related industries such as the aviation fuel industry, it could have an adverse direct or indirect effect on our business.

Within the U.S., there is an increasing trend toward regulating GHG emissions directly under the CAA. In response to a 2012 ruling by the U.S. District Court for the District of Columbia, the EPA announced in June 2015 a proposed endangerment finding that aircraft engine GHG emissions cause or contribute to air pollution that may reasonably be anticipated to endanger public health or welfare. If the EPA finalizes the endangerment finding, the EPA is obligated under the CAA to set aircraft engine GHG emission standards. It is anticipated that any such standards established by EPA would closely align with emission standards currently being developed by ICAO. In February 2016, the ICAO Committee on Aviation Environmental Protection (CAEP) recommended that ICAO adopt carbon dioxide certification standards that would apply to new type aircraft certified beginning in 2020, and would be phased in for newly manufactured existing aircraft type designs starting in 2023.

In addition, several states have adopted or are considering initiatives to regulate emissions of GHGs, primarily through the planned development of GHG emissions inventories and/or regional GHG cap and trade programs.

other areas in which we do business. Depending on the scope of such regulation, certain of our facilities and operations, or the operations of our suppliers, may be subject to additional operating and other permit requirements, potentially resulting in increased operating costs.

Future Regulatory Developments

Future regulatory developments and actions could affect operations and increase operating costs for the airline industry, including our airline subsidiaries. See Part I, Item 1A. Risk Factors – “If we are unable to obtain and maintain adequate facilities and infrastructure throughout our system and, at some airports, adequate slots, we may be unable to operate our existing flight schedule and to expand or change our route network in the future, which may have a material adverse impact on our operations,” “Our business is subject to extensive government regulation, which may result in increases in our costs, disruptions to our operations, limits on our operating flexibility, reductions in the demand for air travel, and competitive disadvantages” and “We are subject to many forms of environmental regulation and may incur substantial costs as a result” for additional information.

Employees and Labor Relations

The airline business is labor intensive. In 2015, salaries, wages and benefits were our largest expenses and represented approximately 31% of our operating expenses.

The table below presents our approximate number of active full-time equivalent employees as of December 31, 2015.


	Mainline Operations		Wholly-owned Regional Carriers		Total
Pilots and Flight Crew Training Instructors		13,100		3,200		16,300
Flight Attendants		24,100		1,900		26,000
Maintenance personnel		14,400		1,800		16,200
Fleet Service personnel		16,100		3,200		19,300
Passenger Service personnel		16,500		7,100		23,600
Administrative and other		14,700		2,400		17,100

Total		98,900		19,600		118,500

As of December 31, 2015, approximately 82% of AAG’s total active employees were represented by various labor unions and covered by CBAs as detailed in the table below.


Union	Class or Craft	Employees (1)		Contract Amendable Date (2)
Combined American:
Allied Pilots Association (APA)	Pilots		12,800		12/31/2019
Association of Professional Flight Attendants (APFA)	Flight Attendants		24,100		12/13/2019
Airline Customer Service Employee Association – Communications Workers of America and International Brotherhood of Teamsters (CWA-IBT)	Passenger Service		16,500		12/1/2020

American Mainline:
Transport Workers Union (TWU)	Mechanics and Related		9,300		9/12/2018
TWU	Fleet Service		9,400		9/12/2018
TWU	Stock Clerks		1,200		9/12/2018
TWU	Simulator Technicians		100		9/12/2018
TWU	Dispatchers		200		9/12/2018
TWU	Flight Crew Training Instructors		200		9/12/2018
TWU	Maintenance Control Technicians		100		9/12/2018

US Airways Mainline (3):
TWU	Flight Crew Training Instructors		100		11/11/2011	(4)
TWU	Flight Simulator Engineers		100		11/11/2011	(4)
TWU	Dispatchers		200		6/30/2015	(4)
International Association of Machinists & Aerospace Workers (IAM)	Mechanics, Stock Clerks and Related		3,500		7/18/2018
IAM	Maintenance Training Instructors		30		7/18/2018
IAM	Fleet Service		6,400		7/18/2018

Envoy:
Air Line Pilots Associations (ALPA)	Pilots		1,800		12/23/2024
Association of Flight Attendants-CWA (AFA)	Flight Attendants		900		7/1/2020
TWU	Ground School Instructors		10		1/1/2019
TWU	Mechanics and Related		1,100		12/31/2020
TWU	Stock Clerks		100		12/31/2020
TWU	Fleet Service Clerks		3,100		1/1/2019
TWU	Dispatchers		100		1/1/2019

Piedmont:
ALPA	Pilots		400		9/19/2024
AFA	Flight Attendants		200		9/9/2019
International Brotherhood of Teamsters (IBT)	Mechanics		300		8/23/2012	(4)
IBT	Stock Clerks		30		4/18/2014	(4)
Communications Workers of America (CWA)	Fleet and Passenger Service		2,800		2/5/2017
IBT	Dispatchers		20		11/30/2019

PSA:
ALPA	Pilots		1,000		4/1/2023
AFA	Flight Attendants		800		4/30/2017
IAM	Mechanics		200		4/24/2016
TWU	Dispatchers		40		9/4/2014	(4)

(1)	Approximate number of active full-time equivalent employees covered by the contract as of December 31, 2015.

(2)	See discussion below regarding the process for combining mainline employee groups post-Merger.

(3)	Although US Airways merged with and into American on December 30, 2015, certain employees of American continue to work under the terms of separate CBAs that were applicable to them as employees of US Airways.

(4)	Contracts are currently amendable.

Relations with such labor organizations are governed by the Railway Labor Act (RLA). Under the RLA, the National Mediation Board (NMB) is responsible for determining which union, if any, is designated to represent employees. In an airline merger, when different unions represent the employees at the merging carrier, a union may file an application with the NMB to represent the combined group of post-merger employees. The application is reviewed by the NMB, which considers whether the operations of the merging carriers have been sufficiently integrated to constitute a single transportation system. After the integration process is found to have created a single transportation system, the NMB then conducts an investigation to determine which union, if any, is to be the representative of the post-merger employees. That union then negotiates a joint collective bargaining agreement (JCBA) covering the combined group of post-merger employees.

When an RLA CBA becomes amendable, if either party to the agreement wishes to modify its terms, it must notify the other party in the manner prescribed under the RLA and as agreed by the parties. Under the RLA, the parties must meet for direct negotiations, and, if no agreement is reached, either party may request the NMB to appoint a federal mediator. The RLA prescribes no set timetable for the direct negotiation and mediation process. It is not unusual for those processes to last for many months and even for several years. If no agreement is reached in mediation, the NMB in its discretion may declare under the RLA at some time that an impasse exists, and if an impasse is declared, the NMB proffers binding arbitration to the parties. Either party may decline to submit to binding arbitration. If arbitration is rejected by either party, an initial 30-day “cooling off” period commences. Following the conclusion of that 30-day “cooling off” period, if no agreement has been reached, “self-help” (as described below) can begin unless a Presidential Emergency Board (PEB) is established. A PEB examines the parties’ positions and recommends a solution. The PEB process lasts for 30 days and (if no resolution is reached) is followed by another “cooling off” period of 30 days. At the end of a “cooling off” period (unless an agreement is reached, a PEB is established, or action is taken by Congress), the labor organization may exercise “self-help,” such as a strike, and the airline may resort to its own “self-help,” including the imposition of any or all of its proposed amendments and the hiring of new employees to replace any striking workers.

In 2014 and 2015, we reached agreements with several labor unions. On December 18, 2014, we reached a JCBA with the APFA. The new agreement did not require ratification and was effective immediately with the wage increases under the JCBA becoming effective January 1, 2015.

On January 3, 2015, we reached a tentative agreement with the APA on a five-year JCBA, which was ratified on January 30, 2015. The new, higher pay rates were implemented retroactive to December 2, 2014.

In September 2015, we reached an agreement with the CWA-IBT for a new JCBA applicable to passenger service employees, which was ratified in November 2015 and provided significant pay increases for combined passenger service employees, effective immediately.

Most of the other mainline American ground employees are covered by existing TWU agreements that will not become amendable until 2018. The approximate 10,000 US Airways mechanics, fleet service agents and stores employees are covered by IAM agreements that also become amendable in 2018. In August 2014, the TWU and the IAM together filed single transportation system applications to jointly represent the combined groups of mainline US Airways and mainline American mechanics, fleet service and stores employees. The NMB certified the TWU-IAM alliance as the representative of the American mechanics, fleet service and stores employees, and JCBA negotiations for those combined groups are now underway.

The TWU represented both the mainline American and the mainline US Airways dispatchers, flight simulator engineers and flight crew training instructors prior to the merger, and the NMB has certified the TWU as the representative of each of those employee groups post-merger.

The Merger had no impact on the CBAs that cover the employees of our wholly-owned subsidiary airlines which are not being merged (Envoy, Piedmont and PSA).

Certain union-represented American mainline employees are covered by agreements that are not currently amendable. Until those agreements become amendable, negotiations for JCBAs will be conducted outside the traditional RLA bargaining process described above, and, in the meantime, no self-help will be permissible. The Piedmont mechanics and stock clerks and the PSA dispatchers have agreements that are now amendable and are engaged in traditional RLA negotiations.

None of the unions representing our employees presently may lawfully engage in concerted refusals to work, such as strikes, slow-downs, sick-outs or other similar activity, against us. Nonetheless, there is a risk that disgruntled employees, either with or without union involvement, could engage in one or more concerted refusals to work that could individually or collectively harm the operation of our airline and impair our financial performance.

For more discussion, see Part I, Item 1A. Risk Factors – “Union disputes, employee strikes and other labor-related disruptions may adversely affect our operations.”

Aircraft Fuel

Our operations and financial results are significantly affected by the availability and price of jet fuel. Based on our 2016 forecasted mainline and regional fuel consumption, we estimate that, as of December 31, 2015, a one cent per gallon increase in aviation fuel price would increase our 2016 annual fuel expense by $44 million.

The following table shows annual aircraft fuel consumption and costs, including taxes, for our mainline operations for 2015 and 2014 (gallons and aircraft fuel expense in millions).


Year	Gallons		Average Price per Gallon		Aircraft Fuel Expense		Percent of Total Mainline Operating Expenses
2015		3,611	$	1.72	$	6,226		21.6	%
2014		3,644		2.91		10,592		33.2	%

Total fuel expenses for our wholly-owned and third-party regional carriers operating under capacity purchase agreements of American were $1.2 billion and $2.0 billion for the years ended December 31, 2015 and 2014, respectively.

As of December 31, 2015, we did not have any fuel hedging contracts outstanding to hedge our fuel consumption. As such, and assuming we do not enter into any future transactions to hedge our fuel consumption, we will continue to be fully exposed to fluctuations in fuel prices. Our current policy is not to enter into transactions to hedge our fuel consumption, although we review that policy from time to time based on market conditions and other factors.

Fuel prices have fluctuated substantially over the past several years. We cannot predict the future availability, price volatility or cost of aircraft fuel. Natural disasters, political disruptions or wars involving oil-producing countries, changes in fuel-related governmental policy, the strength of the U.S. dollar against foreign currencies, changes in access to petroleum product pipelines and terminals, speculation in the energy futures markets, changes in aircraft fuel production capacity, environmental concerns and other unpredictable events may result in fuel supply shortages, additional fuel price volatility and cost increases in the future. See Part I, Item 1A. Risk Factors – “Our business is dependent on the price and availability of aircraft fuel. Continued periods of high volatility in fuel costs, increased fuel prices and significant disruptions in the supply of aircraft fuel could have a significant negative impact on our operating results and liquidity.”

Insurance

We maintain insurance of the types that we believe are customary in the airline industry, including insurance for public liability, passenger liability, property damage, and all-risk coverage for damage to our aircraft. Principal coverage includes liability for injury to members of the public, including passengers, damage to

property of AAG, its subsidiaries and others, and loss of or damage to flight equipment, whether on the ground or in flight. We also maintain other types of insurance such as workers’ compensation and employer’s liability, with limits and deductibles that we believe are standard within the industry.

In addition, insurers significantly increased the premiums for aviation insurance in general following September 11, 2001. While the price of commercial insurance has declined since the period immediately after the terrorist attacks of September 11, 2001, if commercial insurance carriers reduce the amount of insurance coverage available to us or significantly increase its cost, we would be materially adversely affected. See Part I, Item 1A. Risk Factors – “Increases in insurance costs or reductions in insurance coverage may adversely impact our operations and financial results.”

Customer Service

We are committed to consistently delivering safe, reliable and convenient service to our customers in every aspect of our operation. The table below summarizes the operating statistics we reported to the DOT for our mainline operations for the years ended December 31, 2015 and 2014. We are working to improve these metrics by making investments in our operations, which include the hiring of additional maintenance personnel to reduce the time aircraft are out of service. We are also making capital investments in new baggage handling technology.


	December 31,				Better (Worse)
	2015		2014		Better (Worse)
On-time performance (a)		80.1		77.9		2.2	pts
Completion factor (b)		98.4		98.4		—	pts
Mishandled baggage (c)		3.97		3.77		(5.3	)%
Customer complaints (d)		3.22		2.12		(51.9	)%

(a)	Percentage of reported flight operations arriving less than 15 minutes after the scheduled arrival time.

(b)	Percentage of scheduled flight operations completed.

(c)	Rate of mishandled baggage reports per 1,000 passengers.

(d)	Rate of customer complaints filed with the DOT per 100,000 enplanements.

Loyalty Program

Our loyalty program, AAdvantage^® was established to develop passenger loyalty by offering awards to travelers for their continued patronage. AAdvantage members earn mileage credits by flying on American, the American Eagle carriers, the third-party regional carriers and other participating airlines or by using services of other participants in these programs. Mileage credits can be redeemed for free or upgraded travel on American, the American Eagle carriers or other participating airlines, or for other awards. Once a member accrues sufficient mileage for an award, the member may book award travel. Most travel awards are subject to capacity-controlled seating. A member’s mileage credit does not expire as long as that member has any type of qualifying activity at least once every 18 months.

In 2015, we completed the integration of the US Airways Dividend Miles program into American’s AAdvantage program. Also, to ensure we are rewarding our most loyal customers, we announced a program change to occur in the second half of 2016, whereby customers will earn award miles based on dollars spent rather than distance flown.

American sells mileage credits and related services to other partners in the AAdvantage program primarily with the purpose of awarding qualifying members based on their usage of our co-branded credit cards or the usage of other services, hotels and rental cars provided by partners. There are over 1,000 program partners, including leading credit card issuers (Citibank and BarclaycardUS), hotels, car rental companies and other

products and services companies. We believe that program partners benefit from the sustained purchasing behavior of their members, which translates into incremental and recurring streams of revenues for us. Under our agreements with AAdvantage members and program partners, we reserve the right to change the AAdvantage program at any time without notice, and may end the program with six months’ notice. Program rules, partners, special offers, awards and requisite mileage levels for awards are subject to change. As of December 31, 2015, AAdvantage had approximately 853.6 billion outstanding award miles. During 2015, AAdvantage issued approximately 315 billion miles, of which approximately 58% were sold to program partners.

We and other participating airline partners limit the number of seats per flight that are available for redemption by award recipients by using various inventory management techniques. We charge various fees for issuing awards dependent upon destination and booking method and for issuing awards within 21 days of the travel date.

All travel on eligible tickets will count toward qualification for elite status in the AAdvantage program. Elite members can enjoy additional benefits of the AAdvantage program, including First and Business Class check-in, priority security and priority boarding, complimentary access to Preferred Seats, priority baggage delivery, and checked bags at no charge.

See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – “Critical Accounting Policies and Estimates” for more information on AAdvantage.

Ticket Distribution

Passengers can purchase tickets for travel on American through several distribution channels including their direct websites (www.aa.com), our reservations centers and third-party distribution channels, including those provided by or through global distribution systems (e.g., Amadeus, Sabre and Travelport), conventional travel agents and online travel agents (e.g., Expedia, Orbitz and Travelocity). To remain competitive, we will need to successfully manage our distribution costs and rights, increase our distribution flexibility and improve the functionality of third-party distribution channels, while maintaining an industry-competitive cost structure. For more discussion, see Part I, Item 1A. Risk Factors – “We rely on third-party distribution channels and must manage effectively the costs, rights and functionality of these channels.”

Seasonality and Other Factors

Due to the greater demand for air and leisure travel during the summer months, revenues in the airline industry in the second and third quarters of the year tend to be greater than revenues in the first and fourth quarters of the year. General economic conditions, fears of terrorism or war, fare initiatives, fluctuations in fuel prices, labor actions, weather, natural disasters, outbreaks of disease, and other factors could impact this seasonal pattern. Therefore, our quarterly results of operations are not necessarily indicative of operating results for the entire year, and historical operating results in a quarterly or annual period are not necessarily indicative of future operating results.

Unaudited quarterly financial data for the two-year period ended December 31, 2015 is included in Note 20 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 18 to American’s Consolidated Financial Statements in Part II, Item 8B.

Available Information

The SEC allows AAG and American to incorporate information by reference into this Form 10-K. This means that AAG and American can disclose important information to you by referring you to another document filed separately with the SEC. Any information incorporated by reference into this Form 10-K is considered to be a part of this Form 10-K, except for any information that is superseded by information that is included directly in this Form 10-K or incorporated by reference subsequent to the date of this Form 10-K. AAG and American do not incorporate the contents of their website into this Form 10-K.

A copy of this Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), are available free of charge at www.aa.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC and at the website maintained by the SEC at www.sec.gov.

AAG has made and expects to make public disclosures of certain information regarding AAG and its subsidiaries to investors and the general public by means of the investor relations section of our website (www.aa.com) as well as through the use of social media sites, including, but not limited to, Facebook and Twitter and a website maintained by us to provide information regarding AAG’s reorganization pursuant to the Plan. Investors are encouraged to (i) join American’s circle (@AmericanAir) on Twitter, (ii) “like” American (www.facebook.com/AmericanAirlines) on its Facebook page, (iii) follow American (www.google.com/+americanairlines) on Google+; (iv) follow American (www.instagram.com/americanair) on Instagram; (v) follow American (www.linkedin.com/company/american-airlines) on LinkedIn; (vi) subscribe to American (www.youtube.com/user/americanairlines) on YouTube; (vii) follow American (username AmericanAir) on Snapchat; and (viii) visit www.amrcaseinfo.com for updated information regarding the Plan. Neither AAG nor American incorporates the contents of its social media posts or websites into this Annual Report on Form 10-K.

ITEM 1A. RISK FACTORS

Below are certain risk factors that may affect our business, results of operations and financial condition, or the trading price of our common stock or other securities. We caution the reader that these risk factors may not be exhaustive. We operate in a continually changing business environment, and new risks and uncertainties emerge from time to time. Management cannot predict such new risks and uncertainties, nor can it assess the extent to which any of the risk factors below or any such new risks and uncertainties, or any combination thereof, may impact our business.

Risks Relating to the Company and Industry-Related Risks

We could experience significant operating losses in the future.

For a number of reasons, including those addressed in these risk factors, we might fail to maintain profitability and might experience significant losses. In particular, the condition of the economy, the level and volatility of fuel prices, the state of travel demand and intense competition in the airline industry have had, and will continue to have an impact on our operating results, and may increase the risk that we will experience losses.

Downturns in economic conditions adversely affect our business.

Due to the discretionary nature of business and leisure travel spending, airline industry revenues are heavily influenced by the condition of the U.S. economy and economies in other regions of the world. Unfavorable conditions in these broader economies have resulted, and may result in the future, in decreased passenger demand for air travel and changes in booking practices, both of which in turn have had, and may have in the future, a strong negative effect on our revenues. In addition, during challenging economic times, actions by our competitors to increase their revenues can have an adverse impact on our revenues. See “The airline industry is intensely competitive and dynamic” below. Certain labor agreements to which we are a party limit our ability to reduce the number of aircraft in operation, and the utilization of such aircraft, below certain levels. As a result, we may not be able to optimize the number of aircraft in operation in response to a decrease in passenger demand for air travel.

Our business is dependent on the price and availability of aircraft fuel. Continued periods of high volatility in fuel costs, increased fuel prices and significant disruptions in the supply of aircraft fuel could have a significant negative impact on our operating results and liquidity.

Our operating results are materially impacted by changes in the availability, price volatility and cost of aircraft fuel, which represents one of the largest single cost items in our business. Jet fuel market prices have fluctuated substantially over the past several years and prices continue to be highly volatile.

Because of the amount of fuel needed to operate our business, even a relatively small increase or decrease in the price of fuel can have a material effect on our operating results and liquidity. Due to the competitive nature of the airline industry and unpredictability of the market, we can offer no assurance that we may be able to increase our fares, impose fuel surcharges or otherwise increase revenues sufficiently to offset fuel price increases. Similarly, we cannot predict the effect or the actions of our competitors if the current low fuel prices remain in place for a significant period of time.

Although we are currently able to obtain adequate supplies of aircraft fuel, we cannot predict the future availability, price volatility or cost of aircraft fuel. Natural disasters, political disruptions or wars involving oil-producing countries, changes in fuel-related governmental policy, the strength of the U.S. dollar against foreign currencies, changes in access to petroleum product pipelines and terminals, speculation in the energy futures markets, changes in aircraft fuel production capacity, environmental concerns and other unpredictable events may result in fuel supply shortages, additional fuel price volatility and cost increases in the future.

We have a large number of older aircraft in our fleet, and these aircraft are not as fuel efficient as more recent models of aircraft, including those we have on order. We intend to continue to execute our fleet renewal plans to, among other things, improve the fuel efficiency of our fleet, and we are dependent on a limited number of major aircraft manufacturers to deliver aircraft on schedule. If we experience delays in delivery of the more fuel efficient aircraft that we have on order, we will be adversely affected.

Our aviation fuel purchase contracts generally do not provide meaningful price protection against increases in fuel costs. Prior to the closing of the Merger, we sought to manage the risk of fuel price increases by using derivative contracts. As of December 31, 2015, we did not have any fuel hedging contracts outstanding. As such, and assuming we do not enter into any future transactions to hedge our fuel consumption, we will continue to be fully exposed to fluctuations in fuel prices.

Our current policy is not to enter into transactions to hedge our fuel consumption, although we review that policy from time to time based on market conditions and other factors. If in the future we enter into derivative contracts to hedge our fuel consumption, there can be no assurance that, at any given time, we will have derivatives in place to provide any particular level of protection against increased fuel costs or that our counterparties will be able to perform under our derivative contracts. To the extent we use derivative contracts that have the potential to create an obligation to pay upon settlement if prices decline significantly, such derivative contracts may limit our ability to benefit from lower fuel costs in the future. Also, a rapid decline in the projected price of fuel at a time when we have fuel hedging contracts in place could adversely impact our short-term liquidity, because hedge counterparties could require that we post collateral in the form of cash or letters of credit. See also the discussion in Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk – “AAG’s Market Risk Sensitive Instruments and Positions – Aircraft Fuel” and “American’s Market Risk Sensitive Instruments and Positions – Aircraft Fuel.”

The airline industry is intensely competitive and dynamic.

Our competitors include other major domestic airlines and foreign, regional and new entrant airlines, as well as joint ventures formed by some of these airlines, many of which have more financial or other resources and/or lower cost structures than ours, as well as other forms of transportation, including rail and private automobiles. In many of our markets we compete with at least one low-cost air carrier. Our revenues are sensitive to the actions of other carriers in many areas including pricing, scheduling, capacity and promotions, which can have a substantial adverse impact not only on our revenues, but on overall industry revenues. These factors may become even more significant in periods when the industry experiences large losses, as airlines under financial stress, or in bankruptcy, may institute pricing structures intended to achieve near-term survival rather than long-term viability.

Low-cost carriers, including so-called ultra-low-cost carriers, have a profound impact on industry revenues. Using the advantage of low unit costs, these carriers offer lower fares in order to shift demand from larger, more established airlines, and represent significant competitors, particularly for customers who fly infrequently and are price sensitive and tend not to be loyal to any one particular carrier. Some low-cost carriers, which have cost structures lower than ours, have better recent financial performance and have announced growth strategies including commitments to acquire significant numbers of aircraft for delivery in the next few years. These low-cost carriers are expected to continue to increase their market share through growth and, potentially, consolidation, and could continue to have an impact on our revenues and overall performance. For example, as a result of divestitures completed in connection with gaining regulatory approval for the Merger, low-fare, low-cost carriers have gained additional access in a number of markets, including DCA, a slot-controlled airport. The actions of the low-cost carriers, including those described above, could have a material adverse effect on our operations and financial performance.

Our presence in international markets is not as extensive as that of some of our competitors. We derived approximately 30% of our operating revenues in 2015 from operations outside of the U.S., as measured and

reported to the DOT. In providing international air transportation, we compete to provide scheduled passenger and cargo service between the U.S. and various overseas locations with U.S. airlines, foreign investor-owned airlines, and foreign state-owned or state-affiliated airlines, including carriers based in the Middle East, the three largest of which we believe benefit from significant government subsidies. Our international service exposes us to foreign economies and the potential for reduced demand, such as we have recently experienced in Brazil and Venezuela, when any foreign countries we serve suffer adverse local economic conditions. In addition, open skies agreements with an increasing number of countries around the world provide international airlines with open access to U.S. markets. See “Our business is subject to extensive government regulation, which may result in increases in our costs, disruptions to our operations, limits on our operating flexibility, reductions in the demand for air travel, and competitive disadvantages.”

Certain airline alliances have been, or may in the future be, granted immunity from antitrust regulations by governmental authorities for specific areas of cooperation, such as joint pricing decisions. To the extent alliances formed by our competitors can undertake activities that are not available to us, our ability to effectively compete may be hindered. Our ability to attract and retain customers is dependent upon, among other things, our ability to offer our customers convenient access to desired markets. Our business could be adversely affected if we are unable to maintain or obtain alliance and marketing relationships with other air carriers in desired markets.

We are party to antitrust-immunized cooperation agreements with British Airways, Iberia, Finnair, Royal Jordanian, Japan Airlines, LAN Airlines and LAN Peru. We have also established joint business agreements (JBAs) with British Airways, Iberia, and Finnair, and separately Japan Airlines. In addition, we applied for regulatory approval to enter into a JBA with Qantas Airways and have or will be applying for regulatory approval of a JBA with LATAM Airlines Group air carriers in the relevant jurisdictions affected by that JBA. No assurances can be given as to any benefits that we may derive from such arrangements or any other arrangements that may ultimately be implemented.

Additional mergers and other forms of industry consolidation, including antitrust immunity grants, may take place and may not involve us as a participant. Depending on which carriers combine and which assets, if any, are sold or otherwise transferred to other carriers in connection with such combinations, our competitive position relative to the post-combination carriers or other carriers that acquire such assets could be harmed. In addition, as carriers combine through traditional mergers or antitrust immunity grants, their route networks will grow, and that growth will result in greater overlap with our network, which in turn could result in lower overall market share and revenues for us. Such consolidation is not limited to the U.S., but could include further consolidation among international carriers in Europe and elsewhere.

We may be unable to integrate operations successfully and realize the anticipated synergies and other benefits of the Merger.

The Merger involved the combination of two companies that operated as independent public companies prior to the Merger, and each of which operated its own international network airline. Historically, the integration of separate airlines has often proven to be more time consuming and to require more resources than initially estimated. Although we received a single operating certificate from the FAA for American and US Airways on April 8, 2015, implemented a single integrated reservation system on October 17, 2015 and merged American and US Airways on December 30, 2015, we must continue to devote significant management attention and resources to integrating our business practices, cultures and operations. Potential difficulties we may encounter as part of the integration process include the following:

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the inability to successfully combine our businesses in a manner that permits us to achieve the synergies and other benefits anticipated to result from the Merger;

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the challenge of integrating complex systems, operating procedures, regulatory compliance programs, technology, aircraft fleets, networks, and other assets (including, for example, our flight operations systems and technology which supports human resources functions) in a manner that minimizes any adverse impact on customers, suppliers, employees, and other constituencies;

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the effects of divestitures and other operational commitments entered into in connection with the settlement of the litigation brought by the Department of Justice (DOJ) and certain states prior to the closing of the Merger, including those involving DAL and DCA;

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the challenge of forming and maintaining an effective and cohesive management team;

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the diversion of the attention of our management and other key employees;

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the challenge of integrating workforces while maintaining focus on providing consistent, high quality customer service and running an efficient operation;

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the risks relating to integrating various computer, communications and other technology systems that will be necessary to operate American and US Airways as a single airline and to achieve cost synergies by eliminating redundancies in the businesses;

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the disruption of, or the loss of momentum in, our ongoing business;

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branding or rebranding initiatives may involve substantial costs and may not be favorably received by customers; and

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potential unknown liabilities, liabilities that are significantly larger than we currently anticipate and unforeseen increased expenses or delays associated with the Merger, including costs in excess of the cash transition costs that we currently anticipate.

Accordingly, we may not be able to realize the contemplated benefits of the Merger fully, or it may take longer and cost more than expected to realize such benefits.

Ongoing data security compliance requirements could increase our costs, and any significant data breach could disrupt our operations and harm our reputation, business, results of operations and financial condition.

Our business requires the appropriate and secure utilization of customer, employee, business partner and other sensitive information. We cannot be certain that advances in criminal capabilities (including cyber-attacks or cyber intrusions over the Internet, malware, computer viruses and the like), discovery of new vulnerabilities or attempts to exploit existing vulnerabilities in our systems, other data thefts, physical system or network break-ins or inappropriate access, or other developments will not compromise or breach the technology protecting the networks that access and store sensitive information. The risk of a security breach or disruption, particularly through cyber-attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Furthermore, there has been heightened legislative and regulatory focus on data security in the U.S. and abroad (particularly in the EU), including requirements for varying levels of customer notification in the event of a data breach.

In addition, many of our commercial partners, including credit card companies, have imposed data security standards that we must meet. In particular, we are required by the Payment Card Industry Security Standards Council, founded by the credit card companies, to comply with their highest level of data security standards. While we continue our efforts to meet these standards, new and revised standards may be imposed that may be difficult for us to meet and could increase our costs.

A significant data security breach or our failure to comply with applicable U.S. or foreign data security regulations or other data security standards may expose us to litigation, claims for contract breach, fines, sanctions or other penalties, which could disrupt our operations, harm our reputation and materially and adversely affect our business, results of operations and financial condition. Failure to address these issues appropriately could also give rise to additional legal risks, which, in turn, could increase the size and number of litigation claims and damages asserted or subject us to enforcement actions, fines and penalties and cause us to incur further related costs and expenses.

Our indebtedness and other obligations are substantial and could adversely affect our business and liquidity.

We have significant amounts of indebtedness and other obligations, including pension obligations, obligations to make future payments on flight equipment and property leases, and substantial non-cancelable obligations under aircraft and related spare engine purchase agreements. Moreover, currently a substantial portion of our assets are pledged to secure our indebtedness. Our substantial indebtedness and other obligations could have important consequences. For example, they:

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may make it more difficult for us to satisfy our obligations under our indebtedness;

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may limit our ability to obtain additional funding for working capital, capital expenditures, acquisitions, investments, integration costs, and general corporate purposes, and adversely affect the terms on which such funding can be obtained;

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require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness and other obligations, thereby reducing the funds available for other purposes;

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make us more vulnerable to economic downturns, industry conditions and catastrophic external events;

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limit our ability to respond to business opportunities and to withstand operating risks that are customary in the industry; and

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contain restrictive covenants that could:

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limit our ability to merge, consolidate, sell assets, incur additional indebtedness, issue preferred stock, make investments and pay dividends;

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significantly constrain our ability to respond, or respond quickly, to unexpected disruptions in our own operations, the U.S. or global economies, or the businesses in which we operate, or to take advantage of opportunities that would improve our business, operations, or competitive position versus other airlines;

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limit our ability to withstand competitive pressures and reduce our flexibility in responding to changing business and economic conditions; and

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result in an event of default under our indebtedness.

We will need to obtain sufficient financing or other capital to operate successfully.

Our business plan contemplates significant investments in modernizing our fleet and integrating the American and US Airways businesses. Significant capital resources will be required to execute this plan. We estimate that, based on our commitments as of December 31, 2015, our planned aggregate expenditures for aircraft purchase commitments and certain engines on a consolidated basis for calendar years 2016-2020 would be approximately $18.0 billion. Accordingly, we will need substantial financing or other capital resources. In addition, as of the date of this report, we had not secured financing commitments for some of the aircraft that we have on order, and we cannot be assured of the availability or cost of that financing. In particular, as of December 31, 2015, we did not have financing commitments for the following aircraft currently on order and scheduled to be delivered through 2017: 25 Airbus A320 family aircraft in 2016 and 20 Airbus A320 family aircraft in 2017, 8 Boeing 787 family aircraft in 2016 and 13 Boeing 787 family aircraft in 2017, 15 Boeing 737-800 aircraft in 2016, three Boeing 737 MAX family aircraft in 2017 and two Boeing 777-300ER aircraft in 2016. In addition, we do not have financing commitments in place for substantially all aircraft currently on order and scheduled to be delivered in 2018 and beyond. The number of aircraft for which we do not have financing may change as we exercise purchase options or otherwise change our purchase and delivery schedules. If we are unable to arrange financing for such aircraft at customary advance rates and on terms and conditions acceptable to us, we may need to use cash from operations or cash on hand to purchase such aircraft or may seek to negotiate deferrals for such aircraft with the aircraft manufacturers. Depending on numerous factors, many of which are out of our control,

such as the state of the domestic and global economies, the capital and credit markets’ view of our prospects and the airline industry in general, and the general availability of debt and equity capital at the time we seek capital, the financing or other capital resources that we will need may not be available to us, or may only be available on onerous terms and conditions. There can be no assurance that we will be successful in obtaining financing or other needed sources of capital to operate successfully. An inability to obtain necessary financing on acceptable terms would have a material adverse impact on our business, results of operations and financial condition.

Increased costs of financing, a reduction in the availability of financing and fluctuations in interest rates could adversely affect our liquidity, results of operations and financial condition.

Concerns about the systemic impact of inflation, the availability and cost of credit, energy costs and geopolitical issues, combined with continued changes in business activity levels and consumer confidence, increased unemployment and volatile oil prices, have in the past and may in the future contribute to volatility in the capital and credit markets. These market conditions could result in illiquid credit markets and wider credit spreads. Any such changes in the domestic and global financial markets may increase our costs of financing and adversely affect our ability to obtain financing needed for the acquisition of aircraft that we have contractual commitments to purchase and for other types of financings we may seek in order to refinance debt maturities, raise capital or fund other types of obligations. Any downgrades to our credit rating may likewise increase the cost and reduce the availability of financing.

Further, a substantial portion of our indebtedness bears interest at fluctuating interest rates, primarily based on the London interbank offered rate for deposits of U.S. dollars (LIBOR). LIBOR tends to fluctuate based on general economic conditions, general interest rates, rates set by the Federal Reserve and other central banks, and the supply of and demand for credit in the London interbank market. We have not hedged our interest rate exposure with respect to the $1.87 billion term loan facility and the $1.4 billion revolving credit facility provided for by the credit and guaranty agreement, entered into June 27, 2013 between AAG, American and certain lenders (as amended and restated on May 21, 2015 and as otherwise amended, the 2013 Credit Facilities), the $1.6 billion term loan facility entered into on May 23, 2013 between US Airways and US Airways Group and certain lenders (as amended, the 2013 Citicorp Credit Facility), the $750 million term loan facility and the $1.0 billion revolving credit facility entered into October 10, 2014, between AAG and American and certain lenders (as amended and restated on April 20, 2015 and as otherwise amended, the 2014 Credit Facilities) and other of our floating rate debt. Accordingly, our interest expense for any particular period will fluctuate based on LIBOR and other variable interest rates. To the extent these interest rates increase, our interest expense will increase, in which event we may have difficulties making interest payments and funding our other fixed costs, and our available cash flow for general corporate requirements may be adversely affected. See also the discussion of interest rate risk in Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk – “AAG’s Market Risk Sensitive Instruments and Positions – Interest” and “American’s Market Risk Sensitive Instruments and Positions – Interest.”

Our high level of fixed obligations may limit our ability to fund general corporate requirements and obtain additional financing, may limit our flexibility in responding to competitive developments and causes our business to be vulnerable to adverse economic and industry conditions.

We have a significant amount of fixed obligations, including debt, pension costs, aircraft leases and financings, aircraft purchase commitments, leases and developments of airport and other facilities and other cash obligations. We also have certain guaranteed costs associated with our regional operations.

As a result of the substantial fixed costs associated with these obligations:

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a decrease in revenues results in a disproportionately greater percentage decrease in earnings;

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we may not have sufficient liquidity to fund all of these fixed obligations if our revenues decline or costs increase; and

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we may have to use our working capital to fund these fixed obligations instead of funding general corporate requirements, including capital expenditures.

These obligations also impact our ability to obtain additional financing, if needed, and our flexibility in the conduct of our business, and could materially adversely affect our liquidity, results of operations and financial condition.

We have significant pension and other postretirement benefit funding obligations, which may adversely affect our liquidity, results of operations and financial condition.

Our pension funding obligations are significant. The amount of these obligations will depend on the performance of investments held in trust by the pension plans, interest rates for determining liabilities and actuarial experience. Currently, our minimum funding obligation for our pension plans is subject to temporary favorable rules that are scheduled to expire at the end of 2017. Our pension funding obligations are likely to increase materially beginning in 2019, when we will be required to make contributions relating to the 2018 fiscal year. In addition, we may have significant obligations for other postretirement benefits, the ultimate amount of which depends on, among other things, the outcome of an adversary proceeding related to retiree medical and life insurance obligations filed in the Chapter 11 Cases.

Any failure to comply with the covenants contained in our financing arrangements may have a material adverse effect on our business, results of operations and financial condition.

The terms of the 2013 Credit Facilities, the 2013 Citicorp Credit Facility and the 2014 Credit Facilities require AAG and American to ensure that AAG and its restricted subsidiaries maintain consolidated unrestricted cash and cash equivalents and amounts available to be drawn under revolving credit facilities in an aggregate amount not less than $2.0 billion, and the 2013 Citicorp Credit Facility also requires AAG and the other obligors thereunder to hold not less than $750 million (subject to partial reductions upon certain reductions in the outstanding amount of the loan) of that amount in accounts subject to control agreements.

Our ability to comply with these liquidity covenants while paying the fixed costs associated with our contractual obligations and our other expenses, including significant pension and other postretirement funding obligations and cash transition costs associated with the Merger, will depend on our operating performance and cash flow, which are seasonal, as well as factors including fuel costs and general economic and political conditions.

In addition, our credit facilities and certain other financing arrangements include covenants that, among other things, limit our ability to pay dividends and make certain other payments, make certain investments, incur additional indebtedness, enter into certain affiliate transactions and engage in certain business activities, in each case subject to certain exceptions.

The factors affecting our liquidity (and our ability to comply with related liquidity and other covenants) will remain subject to significant fluctuations and uncertainties, many of which are outside our control. Any breach of our liquidity and other covenants or failure to timely pay our obligations could result in a variety of adverse consequences, including the acceleration of our indebtedness, the withholding of credit card proceeds by our credit card processors and the exercise of remedies by our creditors and lessors. In such a situation, we may not be able to fulfill our contractual obligations, repay the accelerated indebtedness, make required lease payments or otherwise cover our fixed costs.

If our financial condition worsens, provisions in our credit card processing and other commercial agreements may adversely affect our liquidity.

We have agreements with companies that process customer credit card transactions for the sale of air travel and other services. These agreements allow these processing companies, under certain conditions (including, with respect to certain agreements, the failure of American to maintain certain levels of liquidity) to hold an amount of our cash (a holdback) equal to some or all of the advance ticket sales that have been processed by that

company, but for which we have not yet provided the air transportation. We are not currently required to maintain any holdbacks pursuant to these requirements. These holdback requirements can be modified at the discretion of the processing companies upon the occurrence of specific events, including material adverse changes in our financial condition. An increase in the current holdback balances to higher percentages up to and including 100% of relevant advanced ticket sales could materially reduce our liquidity. Likewise, other of our commercial agreements contain provisions that allow other entities to impose less-favorable terms, including the acceleration of amounts due, in the event of material adverse changes in our financial condition.

Union disputes, employee strikes and other labor-related disruptions may adversely affect our operations.

Relations between air carriers and labor unions in the U.S. are governed by the Railway Labor Act (RLA). Under the RLA, collective bargaining agreements (CBAs) generally contain “amendable dates” rather than expiration dates, and the RLA requires that a carrier maintain the existing terms and conditions of employment following the amendable date through a multi-stage and usually lengthy series of bargaining processes overseen by the National Mediation Board (NMB). For the dates that the CBAs with our major work groups become amendable under the RLA, see Part I, Item 1. Business – “Employees and Labor Relations.”

In the case of a CBA that is amendable under the RLA, if no agreement is reached during direct negotiations between the parties, either party may request that the NMB appoint a federal mediator. The RLA prescribes no timetable for the direct negotiation and mediation processes, and it is not unusual for those processes to last for many months or even several years. If no agreement is reached in mediation, the NMB in its discretion may declare that an impasse exists and proffer binding arbitration to the parties. Either party may decline to submit to arbitration, and if arbitration is rejected by either party, a 30-day “cooling off” period commences. During or after that period, a Presidential Emergency Board (PEB) may be established, which examines the parties’ positions and recommends a solution. The PEB process lasts for 30 days and is followed by another 30-day “cooling off” period. At the end of a “cooling off” period, unless an agreement is reached or action is taken by Congress, the labor organization may exercise “self-help,” such as a strike, which could materially adversely affect our business, results of operations and financial condition.

The inability to maintain labor costs at competitive levels would harm our financial performance.

Currently, we believe our labor costs are competitive relative to the other large network carriers. However, we cannot provide assurance that labor costs going forward will remain competitive because some of our agreements are amendable now and others may become amendable, competitors may significantly reduce their labor costs or we may agree to higher-cost provisions in our current or future labor negotiations. As of December 31, 2015, approximately 82% of our employees were represented for collective bargaining purposes by labor unions. Some of our unions have brought and may continue to bring grievances to binding arbitration, including those related to wages. Unions may also bring court actions and may seek to compel us to engage in bargaining processes where we believe we have no such obligation. If successful, there is a risk these judicial or arbitral avenues could create material additional costs that we did not anticipate.

Interruptions or disruptions in service at one of our hub airports could have a material adverse impact on our operations.

We operate principally through hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York City, Philadelphia, Phoenix and Washington, D.C. Substantially all of our flights either originate in or fly

into one of these locations. A significant interruption or disruption in service at one of our hubs resulting from air traffic control (ATC) delays, weather conditions, natural disasters, growth constraints, relations with third-party service providers, failure of computer systems, facility disruptions, labor relations, power supplies, fuel supplies, terrorist activities or otherwise could result in the cancellation or delay of a significant portion of our flights and, as a result, could have a severe impact on our business, results of operations and financial condition.

If we are unable to obtain and maintain adequate facilities and infrastructure throughout our system and, at some airports, adequate slots, we may be unable to operate our existing flight schedule and to expand or change our route network in the future, which may have a material adverse impact on our operations.

In order to operate our existing and proposed flight schedule and, where appropriate, add service along new or existing routes, we must be able to maintain and/or obtain adequate gates, ticketing facilities, operations areas, and office space. As airports around the world become more congested, we will not always be able to ensure that our plans for new service can be implemented in a commercially viable manner, given operating constraints at airports throughout our network, including due to inadequate facilities at desirable airports. Further, our operating costs at airports at which we operate, including our hubs, may increase significantly because of capital improvements at such airports that we may be required to fund, directly or indirectly. In some circumstances, such costs could be imposed by the relevant airport authority without our approval.

In addition, operations at four major domestic airports, certain smaller domestic airports and certain foreign airports served by us are regulated by governmental entities through the use of slots or similar regulatory mechanisms which limit the rights of carriers to conduct operations at those airports. Each slot represents the authorization to land at or take off from the particular airport during a specified time period and may have other operational restrictions as well. In the U.S., the FAA currently regulates the allocation of slots or slot exemptions at DCA and three New York City airports: Newark Liberty International Airport, JFK and LGA. Our operations at these airports generally require the allocation of slots or similar regulatory authority. Similarly, our operations at international airports in Frankfurt, London Heathrow, Paris and other airports outside the U.S. are regulated by local slot authorities pursuant to the International Air Transport Association’s Worldwide Scheduling Guidelines and applicable local law. We cannot provide any assurance that regulatory changes regarding the allocation of slots or similar regulatory authority will not have a material adverse impact on our operations.

In connection with the settlement of litigation relating to the Merger brought by the DOJ and certain states, we entered into settlement agreements that provide for certain asset divestitures including 52 slot pairs at DCA, 17 slot pairs at LGA and gates and related ground facilities necessary to operate those slot pairs, and two gates at each of Boston Logan International Airport, Chicago O’Hare International Airport, DAL, LAX and Miami International Airport. The settlement agreements also require us to maintain certain hub operations and continue to provide service to certain specified communities for limited periods of time. In addition, we entered into a related settlement with the DOT related to small community service from DCA. Further, as a consequence of the Merger clearance process in the European Union (EU), we made one pair of London Heathrow slots available for use by another carrier and, along with our JBA partners, we made one pair of London Heathrow slots available to competitors for use for up to six years in different markets.

Our ability to provide service can also be impaired at airports, such as Chicago O’Hare International Airport and LAX, where the airport gate and other facilities are inadequate to accommodate all of the service that we would like to provide, or airports such as DAL where we have no access to gates at all.

Any limitation on our ability to acquire or maintain adequate gates, ticketing facilities, operations areas, slots (where applicable), or office space could have a material adverse effect on our business, results of operations and financial condition.

If we encounter problems with any of our third-party regional operators or third-party service providers, our operations could be adversely affected by a resulting decline in revenue or negative public perception about our services.

A significant portion of our regional operations are conducted by third-party operators on our behalf, primarily under capacity purchase agreements. Due to our reliance on third parties to provide these essential services, we are subject to the risks of disruptions to their operations, which may result from many of the same risk factors disclosed in this report, such as the impact of adverse economic conditions, the inability of third parties to hire or retain necessary personnel, including in particular pilots, and other risk factors, such as an out-of-court or bankruptcy restructuring of any of our regional operators. We may also experience disruption to our regional operations if we terminate the capacity purchase agreement with one or more of our current operators and transition the services to another provider. As our regional segment provides revenues to us directly and indirectly (by providing flow traffic to our hubs), any significant disruption to our regional operations would have a material adverse effect on our business, results of operations and financial condition.

In addition, our reliance upon others to provide essential services on behalf of our operations may result in our relative inability to control the efficiency and timeliness of contract services. We have entered into agreements with contractors to provide various facilities and services required for our operations, including distribution and sale of airline seat inventory, provision of information technology and services, regional operations, aircraft maintenance, ground services and facilities, reservations and baggage handling. Similar agreements may be entered into in any new markets we decide to serve. These agreements are generally subject to termination after notice by the third-party service provider. We are also at risk should one of these service providers cease operations, and there is no guarantee that we could replace these providers on a timely basis with comparably priced providers, or at all. Volatility in fuel prices, disruptions to capital markets and adverse economic conditions in general have subjected certain of these third-party regional carriers to significant financial pressures, which have led to several bankruptcies among these carriers. Any material problems with the efficiency and timeliness of contract services, resulting from financial hardships or otherwise, could have a material adverse effect on our business, results of operations and financial condition.

We rely on third-party distribution channels and must manage effectively the costs, rights and functionality of these channels.

We rely on third-party distribution channels, including those provided by or through global distribution systems (GDSs) (e.g., Amadeus, Sabre and Travelport), conventional travel agents and online travel agents (OTAs) (e.g., Expedia, including its booking sites Orbitz and Travelocity, and The Priceline Group), to distribute a significant portion of our airline tickets, and we expect in the future to continue to rely on these channels and hope to expand their ability to distribute and collect revenues for ancillary products (e.g., fees for selective seating). These distribution channels are more expensive and at present have less functionality in respect of ancillary product offerings than those we operate ourselves, such as our call centers and our website. Certain of these distribution channels also effectively restrict the manner in which we distribute our products generally. To remain competitive, we will need to manage successfully our distribution costs and rights, increase our distribution flexibility and improve the functionality of third-party distribution channels, while maintaining an industry-competitive cost structure. These imperatives may affect our relationships with GDSs and OTAs, including as consolidation of OTAs continues or is proposed to continue. Any inability to manage our third-party distribution costs, rights and functionality at a competitive level or any material diminishment or disruption in the distribution of our tickets could have a material adverse effect on our business, results of operations and financial condition.

Our business is subject to extensive government regulation, which may result in increases in our costs, disruptions to our operations, limits on our operating flexibility, reductions in the demand for air travel, and competitive disadvantages.

Airlines are subject to extensive domestic and international regulatory requirements. In the last several years, Congress has passed laws, and the DOT, the FAA, the U.S. Transportation Security Administration (TSA) and

the Department of Homeland Security have issued a number of directives and other regulations, that affect the airline industry. These requirements impose substantial costs on us and restrict the ways we may conduct our business.

For example, the FAA from time to time issues directives and other regulations relating to the maintenance and operation of aircraft that require significant expenditures or operational restrictions. Our failure to timely comply with these requirements has in the past and may in the future result in fines and other enforcement actions by the FAA or other regulators. In the future, new regulatory requirements could have a material adverse effect on us and the industry.

DOT consumer rules that took effect in 2010 require procedures for customer handling during long onboard delays, further regulate airline interactions with passengers through the reservations process, at the airport, and onboard the aircraft, and require disclosures concerning airline fares and ancillary fees such as baggage fees. The DOT has been aggressively investigating alleged violations of these rules. Other DOT rules apply to post-ticket purchase price increases and an expansion of tarmac delay regulations to international airlines.

The Aviation and Transportation Security Act mandates the federalization of certain airport security procedures and imposes additional security requirements on airports and airlines, most of which are funded by a per-ticket tax on passengers and a tax on airlines.

The results of our operations, demand for air travel, and the manner in which we conduct business each may be affected by changes in law and future actions taken by governmental agencies, including:

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changes in law which affect the services that can be offered by airlines in particular markets and at particular airports, or the types of fees that can be charged to passengers;

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the granting and timing of certain governmental approvals (including antitrust or foreign government approvals) needed for codesharing alliances and other arrangements with other airlines;

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restrictions on competitive practices (for example, court orders, or agency regulations or orders, that would curtail an airline’s ability to respond to a competitor);

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the adoption of new passenger security standards or regulations that impact customer service standards (for example, a “passenger bill of rights”);

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restrictions on airport operations, such as restrictions on the use of slots at airports or the auction or reallocation of slot rights currently held by us; and

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the adoption of more restrictive locally-imposed noise restrictions.

Each additional regulation or other form of regulatory oversight increases costs and adds greater complexity to airline operations and, in some cases, may reduce the demand for air travel. There can be no assurance that our compliance with new rules, anticipated rules or other forms of regulatory oversight will not have a material adverse effect on us.

Any significant reduction in air traffic capacity at key airports in the U.S. or overseas could have a material adverse effect on our business, results of operations and financial condition. In addition, the ATC system is not successfully managing the growing demand for U.S. air travel. ATC towers are frequently understaffed in certain of our hubs, and air traffic controllers rely on outdated technologies that routinely overwhelm the system and compel airlines to fly inefficient, indirect routes. The ATC system’s inability to handle existing travel demand has led government agencies to implement short-term capacity constraints during peak travel periods in certain markets, resulting in delays and disruptions of air traffic. The outdated technologies also cause the ATC to be less resilient in the event of a failure. For example, in 2014 the ATC systems in Chicago took weeks to recover following a fire in the ATC tower at Chicago O’Hare International Airport, which resulted in thousands of cancelled flights.

On February 14, 2012, the FAA Modernization and Reform Act of 2012 was signed. The law provides funding for the FAA to rebuild its ATC system, including switching from radar to a GPS-based system. It is uncertain when any improvements to the efficiency of the ATC system will take effect. Failure to update the ATC system in a timely manner and the substantial funding requirements that may be imposed on airlines of a modernized ATC system may have a material adverse effect on our business.

The ability of U.S. airlines to operate international routes is subject to change because the applicable arrangements between the U.S. and foreign governments may be amended from time to time and appropriate slots or facilities may not be made available. We currently operate a number of international routes under government arrangements that limit the number of airlines permitted to operate on the route, the capacity of the airlines providing services on the route, or the number of airlines allowed access to particular airports. If an open skies policy were to be adopted for any of these routes, such an event could have a material adverse impact on us and could result in the impairment of material amounts of our related tangible and intangible assets. In addition, competition from revenue-sharing joint ventures, JBAs, and other alliance arrangements by and among other airlines could impair the value of our business and assets on the open skies routes. For example, the open skies air services agreement between the U.S. and the EU, which took effect in March 2008, provides airlines from the U.S. and EU member states open access to each other’s markets, with freedom of pricing and unlimited rights to fly from the U.S. to any airport in the EU, including London Heathrow Airport. As a result of the agreement, we face increased competition in these markets, including London Heathrow Airport.

The airline industry is heavily taxed.

The airline industry is subject to extensive government fees and taxation that negatively impact our revenue. The U.S. airline industry is one of the most heavily taxed of all industries. These fees and taxes have grown significantly in the past decade for domestic flights, and various U.S. fees and taxes also are assessed on international flights. For example, as permitted by federal legislation, most major U.S. airports impose a passenger facility charge per passenger on us. In addition, the governments of foreign countries in which we operate impose on U.S. airlines, including us, various fees and taxes, and these assessments have been increasing in number and amount in recent years. Moreover, we are obligated to collect a federal excise tax, commonly referred to as the “ticket tax,” on domestic and international air transportation. We collect the excise tax, along with certain other U.S. and foreign taxes and user fees on air transportation (such as passenger security fees), and pass along the collected amounts to the appropriate governmental agencies. Although these taxes are not operating expenses, they represent an additional cost to our customers. There are continuing efforts in Congress and in other countries to raise different portions of the various taxes, fees, and charges imposed on airlines and their passengers. Increases in such taxes, fees and charges could negatively impact our business, results of operations and financial condition.

Under DOT regulations, all governmental taxes and fees must be included in the prices we quote or advertise to our customers. Due to the competitive revenue environment, many increases in these fees and taxes have been absorbed by the airline industry rather than being passed on to the customer. Further increases in fees and taxes may reduce demand for air travel, and thus our revenues.

Changes to our business model that are designed to increase revenues may not be successful and may cause operational difficulties or decreased demand.

We have a number of measures designed to increase revenue and offset costs. These measures include charging separately for services that had previously been included within the price of a ticket and increasing other pre-existing fees. We may introduce additional initiatives in the future; however, as time goes on, we expect that it will be more difficult to identify and implement additional initiatives. We cannot assure you that these measures or any future initiatives will be successful in increasing our revenues. Additionally, the implementation of these initiatives may create logistical challenges that could harm the operational performance of our airline. Also, any new and increased fees might reduce the demand for air travel on our airline or across

the industry in general, particularly if weakened economic conditions make our customers more sensitive to increased travel costs or provide a significant competitive advantage to other carriers that determine not to institute similar charges.

The loss of key personnel upon whom we depend to operate our business or the inability to attract additional qualified personnel could adversely affect our business.

We believe that our future success will depend in large part on our ability to retain or attract highly qualified management, technical and other personnel. We may not be successful in retaining key personnel or in attracting other highly qualified personnel. Any inability to retain or attract significant numbers of qualified management and other personnel would have a material adverse effect on our business, results of operations and financial condition.

We may be adversely affected by conflicts overseas or terrorist attacks; the travel industry continues to face ongoing security concerns.

Acts of terrorism or fear of such attacks, including elevated national threat warnings, wars or other military conflicts, may depress air travel, particularly on international routes, and cause declines in revenues and increases in costs. The attacks of September 11, 2001 and continuing terrorist threats, attacks and attempted attacks materially impacted and continue to impact air travel. Increased security procedures introduced at airports since the attacks of September 11, 2001 and any other such measures that may be introduced in the future generate higher operating costs for airlines. The Aviation and Transportation Security Act mandated improved flight deck security, deployment of federal air marshals on board flights, improved airport perimeter access security, airline crew security training, enhanced security screening of passengers, baggage, cargo, mail, employees and vendors, enhanced training and qualifications of security screening personnel, additional provision of passenger data to the U.S. Customs and Border Protection Agency and enhanced background checks. A concurrent increase in airport security charges and procedures, such as restrictions on carry-on baggage, has also had and may continue to have a disproportionate impact on short-haul travel, which constitutes a significant portion of our flying and revenue.

We operate a global business with international operations that are subject to economic and political instability and have been, and in the future may continue to be, adversely affected by numerous events, circumstances or government actions beyond our control.

We operate a global business with operations outside of the U.S. from which we derived approximately 30% of our operating revenues in 2015, as measured and reported to the DOT. Our current international activities and prospects have been and in the future could be adversely affected by reversals or delays in the opening of foreign markets, increased competition in international markets, exchange controls or other restrictions on repatriation of funds, currency and political risks (including changes in exchange rates and currency devaluations), environmental regulation, increases in taxes and fees and changes in international government regulation of our operations, including the inability to obtain or retain needed route authorities and/or slots. In particular, fluctuations in foreign currencies, including devaluations, exchange controls and other restrictions on the repatriation of funds, have significantly affected and may continue to significantly affect our operating performance, liquidity and the value of any cash held outside the U.S. in local currency.

Generally, fluctuations in foreign currencies, including devaluations, cannot be predicted by us and can significantly affect the value of our assets located outside the United States. These conditions, as well as any further delays, devaluations or imposition of more stringent repatriation restrictions, may materially adversely affect our business, results of operations and financial condition.

We are subject to many forms of environmental and noise regulation and may incur substantial costs as a result.

We are subject to increasingly stringent federal, state, local and foreign laws, regulations and ordinances relating to the protection of the environment and noise reduction, including those relating to emissions to the air,

discharges to surface and subsurface waters, safe drinking water, and the management of hazardous substances, oils and waste materials. Compliance with environmental laws and regulations can require significant expenditures, and violations can lead to significant fines and penalties.

In June 2015, the U.S. Environmental Protection Agency (EPA) issued revised underground storage tank regulations that could affect airport fuel hydrant systems, as certain of those systems may need to be modified in order to comply with applicable portions of the revised regulations. Additionally, on June 4, 2015, the EPA reissued the Multi-Sector General Permit for Stormwater Discharges from Industrial Activities. Among other revisions, the reissued permit incorporates the EPA’s previously issued Airport Deicing Effluent Limitation Guidelines and New Source Performance Standards. In addition, California adopted a revised State Industrial General Permit for Stormwater Discharges on April 1, 2014, which became effective July 1, 2015. This permit places additional reporting and monitoring requirements on permittees and requires implementation of mandatory best management practices. While the cost of compliance with these requirements is not expected to be significant, the company will continue to monitor and evaluate the impact of these requirements on airport operations. In addition to the EPA and state regulations, several U.S. airport authorities are actively engaged in efforts to limit discharges of de-icing fluid to the environment, often by requiring airlines to participate in the building or reconfiguring of airport de-icing facilities. Such efforts are likely to impose additional costs and restrictions on airlines using those airports. We do not believe, however, that such environmental developments will have a material impact on our capital expenditures or otherwise materially adversely affect our operations, operating costs or competitive position.

We are also subject to other environmental laws and regulations, including those that require us to investigate and remediate soil or groundwater to meet certain remediation standards. Under federal law, generators of waste materials, and current and former owners or operators of facilities, can be subject to liability for investigation and remediation costs at locations that have been identified as requiring response actions. Liability under these laws may be strict, joint and several, meaning that we could be liable for the costs of cleaning up environmental contamination regardless of fault or the amount of wastes directly attributable to us. We have liability for investigation and remediation costs at various sites, although such costs are currently not expected to have a material adverse effect on our business.

We have various leases and agreements with respect to real property, tanks and pipelines with airports and other operators. Under these leases and agreements, we have agreed to indemnify the lessor or operator against environmental liabilities associated with the real property or operations described under the agreement, in some cases even if we are not the party responsible for the initial event that caused the environmental damage. We also participate in leases with other airlines in fuel consortiums and fuel committees at airports, where such indemnities are generally joint and several among the participating airlines.

Governmental authorities in several U.S. and foreign cities are also considering, or have already implemented, aircraft noise reduction programs, including the imposition of nighttime curfews and limitations on daytime take offs and landings. We have been able to accommodate local noise restrictions imposed to date, but our operations could be adversely affected if locally-imposed regulations become more restrictive or widespread.

We are subject to risks associated with climate change, including increased regulation to reduce emissions of greenhouse gases.

There is increasing global regulatory focus on climate change and greenhouse gas (GHG) emissions. For example, the EU has established the Emissions Trading Scheme (ETS) to regulate GHG emissions in the EU. The EU adopted a directive in 2008 under which each EU member state is required to extend the ETS to aviation operations. This directive would have required us, beginning in 2012, to annually submit emission allowances in order to operate flights to and from airports in the European Economic Area (EEA), including flights between the U.S. and EU member states. However, in an effort to allow the International Civil Aviation Organization (ICAO) time to propose an alternate scheme to manage global aviation emissions, in April 2013, the EU suspended for

one year the ETS’ application to flights entering and departing the EEA, limiting its application, for flights flown in 2012, to intra-EEA flights only. In October 2013, the ICAO Assembly adopted a resolution calling for the development through ICAO of a global, market-based scheme for aviation GHG emissions, to be finalized in 2016 and implemented in 2020. Subsequently, the EU has amended the EU ETS so that the monitoring, reporting and submission of allowances for aviation GHG emissions will continue to be limited to only intra-EEA flights through 2016, at which time the EU will evaluate the progress made by ICAO and determine what, if any, measures to take related to aviation GHG emissions from 2017 onwards. The U.S. enacted legislation in November 2012 which encourages the DOT to seek an international solution through ICAO and that will allow the U.S. Secretary of Transportation to prohibit U.S. airlines from participating in the ETS. The effort currently underway through ICAO to reach a global agreement on measures to manage international aviation GHG emission growth could significantly impact our business, particularly to the extent that any final agreement may emphasize a collective cost sharing approach for industry emissions growth over a cost approach based on individual carrier contribution to emission growth. Ultimately, the scope and application of ETS or other emissions trading schemes to our operations, now or in the near future, remains uncertain. We do not anticipate any significant emissions allowance expenditures in 2016. Beyond 2016, compliance with the ETS or similar emissions-related requirements could significantly increase our operating costs. Further, the potential impact of ETS or other emissions-related requirements on our costs will ultimately depend on a number of factors, including baseline emissions, the price of emission allowances or offsets and the number of future flights subject to ETS or other emissions-related requirements. These costs have not been completely defined and could fluctuate.

In addition, in December 2015, at the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC’s COP21), over 190 countries, including the United States, reached an agreement to reduce global greenhouse gas emissions. While there is no express reference to aviation in this international agreement, to the extent the United States and other countries implement this agreement or impose other climate change regulations, either with respect to the aviation industry or with respect to related industries such as the aviation fuel industry, it could have an adverse direct or indirect effect on our business.

Within the U.S., there is an increasing trend toward regulating GHG emissions directly under the Clean Air Act (CAA). In response to a 2012 ruling by the U.S. District Court for the District of Columbia, the EPA announced in June 2015 a proposed endangerment finding that aircraft engine GHG emissions cause or contribute to air pollution that may reasonably be anticipated to endanger public health or welfare. A public hearing regarding the proposed endangerment finding was held in August 2015. If the EPA finalizes the endangerment finding, the EPA is obligated under the CAA to set aircraft engine GHG emission standards. It is anticipated that any such standards established by EPA would closely align with emission standards currently being developed by ICAO. In February 2016, the ICAO Committee on Aviation Environmental Protection (CAEP) recommended that ICAO adopt carbon dioxide certification standards that would apply to new type aircraft certified beginning in 2020, and would be phased in for newly manufactured existing aircraft type designs starting in 2023.

These regulatory efforts, both internationally and in the U.S. at the federal and state levels, are still developing, and we cannot yet determine what the final regulatory programs or their impact will be in the U.S., the EU or in other areas in which we do business. However, such climate change-related regulatory activity in the future may adversely affect our business and financial results by requiring us to reduce our emissions, purchase allowances or otherwise pay for our emissions. Such activity may also impact us indirectly by increasing our operating costs, including fuel costs.

We rely heavily on technology and automated systems to operate our business, and any failure of these technologies or systems could harm our business, results of operations and financial condition.

We are highly dependent on technology and automated systems to operate our business and achieve low operating costs. These technologies and systems include our computerized airline reservation system, flight operations systems, financial planning, management and accounting systems, telecommunications systems, website, maintenance systems and check-in kiosks. In order for our operations to work efficiently, our website and reservation system must be able to accommodate a high volume of traffic, maintain secure information and deliver flight information, as well as issue electronic tickets and process critical financial information in a timely manner. Substantially all of our tickets are issued to passengers as electronic tickets. We depend on our reservation system, which is hosted and maintained under a long-term contract by a third-party service provider, to be able to issue, track and accept these electronic tickets. If our automated systems are not functioning or if our third-party service providers were to fail to adequately provide technical support, system maintenance or timely software upgrades for any one of our key existing systems, we could experience service disruptions or delays, which could harm our business and result in the loss of important data, increase our expenses and decrease our revenues. In the event that one or more of our primary technology or systems vendors goes into bankruptcy, ceases operations or fails to perform as promised, replacement services may not be readily available on a timely basis, at competitive rates or at all, and any transition time to a new system may be significant.

Our automated systems cannot be completely protected against other events that are beyond our control, including natural disasters, power failures, terrorist attacks, cyber-attacks, data theft, equipment and software failures, computer viruses or telecommunications failures. Substantial or sustained system failures could cause service delays or failures and result in our customers purchasing tickets from other airlines. We cannot assure you that our security measures, change control procedures or disaster recovery plans are adequate to prevent disruptions or delays. Disruption in or changes to these systems could result in a disruption to our business and the loss of important data. Any of the foregoing could result in a material adverse effect on our business, results of operations and financial condition.

We face challenges in integrating our computer, communications and other technology systems.

Among the principal risks of integrating our businesses and operations are the risks relating to integrating various computer, communications and other technology systems that will be necessary to operate US Airways and American as a single airline and to achieve cost synergies by eliminating redundancies in the businesses. While we have to date successfully integrated several of our systems, including our customer reservations system, we still have to complete several additional important system integration projects. The integration of these systems in a number of prior airline mergers has taken longer, been more disruptive and cost more than originally forecast. The implementation process to integrate these various systems will involve a number of risks that could adversely impact our business, results of operations and financial condition. New systems will replace multiple legacy systems and the related implementation will be a complex and time-consuming project involving substantial expenditures for implementation consultants, system hardware, software and implementation activities, as well as the transformation of business and financial processes.

As with any large project, there will be many factors that may materially affect the schedule, cost and execution of the integration of our computer, communications and other technology systems. These factors include, among others: problems during the design, implementation and testing phases; systems delays and/or malfunctions; the risk that suppliers and contractors will not perform as required under their contracts; the diversion of management attention from daily operations to the project; reworks due to unanticipated changes in business processes; challenges in simultaneously activating new systems throughout our global network; difficulty in training employees in the operations of new systems; the risk of security breach or disruption; and other unexpected events beyond our control. We cannot assure you that our security measures, change control procedures or disaster recovery plans will be adequate to prevent disruptions or delays. Disruptions in or changes to these systems could result in a disruption to our business and the loss of important data. Any of the foregoing could result in a material adverse effect on our business, results of operations and financial condition.

We are at risk of losses and adverse publicity stemming from any accident involving any of our aircraft or the aircraft of our regional or codeshare operators.

If one of our aircraft, an aircraft that is operated under our brand by one of our regional operators, or an aircraft that is operated by an airline with which we have a marketing alliance or codeshare relationship were to be involved in an accident, incident or catastrophe, we could be exposed to significant tort liability. The insurance we carry to cover damages arising from any future accidents may be inadequate. In the event that our insurance is not adequate, we may be forced to bear substantial losses from an accident. In addition, any accident, incident or catastrophe involving an aircraft operated by us, operated under our brand by one of our regional operators or operated by one of our codeshare partners could create a public perception that our aircraft or those of our regional operators or codeshare partners are not safe or reliable, which could harm our reputation, result in air travelers being reluctant to fly on our aircraft or those of our regional operators or codeshare partners, and adversely impact our business, results of operations and financial condition.

Delays in scheduled aircraft deliveries or other loss of anticipated fleet capacity, and failure of new aircraft to perform as expected, may adversely impact our business, results of operations and financial condition.

The success of our business depends on, among other things, effectively managing the number and types of aircraft we operate. In many cases, the aircraft we intend to operate are not yet in our fleet, but we have contractual commitments to purchase or lease them. If for any reason we were unable to accept or secure deliveries of new aircraft on contractually scheduled delivery dates, this could have a negative impact on our business, results of operations and financial condition. Our failure to integrate newly purchased aircraft into our fleet as planned might require us to seek extensions of the terms for some leased aircraft or otherwise delay the exit of certain aircraft from our fleet. Such unanticipated extensions or delays may require us to operate existing aircraft beyond the point at which it is economically optimal to retire them, resulting in increased maintenance costs. If new aircraft orders are not filled on a timely basis, we could face higher operating costs than planned. In addition, if the aircraft we receive do not meet expected performance or quality standards, including with respect to fuel efficiency and reliability, our business, results of operations and financial condition could be adversely impacted.

We depend on a limited number of suppliers for aircraft, aircraft engines and parts.

We depend on a limited number of suppliers for aircraft, aircraft engines and many aircraft and engine parts. As a result, we are vulnerable to any problems associated with the supply of those aircraft, parts and engines, including design defects, mechanical problems, contractual performance by the suppliers, or adverse perception by the public that would result in customer avoidance or in actions by the FAA resulting in an inability to operate our aircraft.

Our business has been and will continue to be affected by many changing economic and other conditions beyond our control, including global events that affect travel behavior, and our results of operations could be volatile and fluctuate due to seasonality.

Our business, results of operations and financial condition has been and will continue to be affected by many changing economic and other conditions beyond our control, including, among others:

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actual or potential changes in international, national, regional, and local economic, business and financial conditions, including recession, inflation, higher interest rates, wars, terrorist attacks, or political instability;

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changes in consumer preferences, perceptions, spending patterns, or demographic trends;

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changes in the competitive environment due to industry consolidation, changes in airline alliance affiliations, and other factors;

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actual or potential disruptions to the ATC systems;

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increases in costs of safety, security, and environmental measures;

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outbreaks of diseases that affect travel behavior; and

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weather and natural disasters.

In particular, an outbreak of a contagious disease such as Ebola virus, Middle East Respiratory Syndrome, Severe Acute Respiratory Syndrome, H1N1 influenza virus, avian flu, Zika virus, or any other similar illness, if it were to persist for an extended period, could materially affect the airline industry and us by reducing revenues and adversely impacting our operations and passengers’ travel behavior. As a result of these or other conditions beyond our control, our results of operations could be volatile and subject to rapid and unexpected change. In addition, due to generally weaker demand for air travel during the winter, our revenues in the first and fourth quarters of the year could be weaker than revenues in the second and third quarters of the year.

A higher than normal number of pilot retirements and a potential shortage of pilots could adversely affect us.

We currently have a higher than normal number of pilots eligible for retirement. Among other things, the extension of pilot careers facilitated by the FAA’s 2007 modification of the mandatory retirement age from age 60 to age 65 has now been fully implemented, resulting in large numbers of pilots in the industry approaching the revised mandatory retirement age. If pilot retirements were to exceed normal levels in the future, it may adversely affect us and our regional partners. On January 4, 2014, more stringent pilot flight and duty time requirements under Part 117 of the Federal Aviation Regulations took effect. In addition, in July 2013, the FAA issued regulations that increase the flight experience required for pilots working for airlines certificated under Part 121 of the Federal Aviation Regulations. These and other factors have in the past and could in the future contribute to a shortage of qualified pilots, particularly for our regional partners, which now face increased competition from large, mainline carriers to hire pilots to replace retiring pilots. If we or our regional partners are unable to hire adequate numbers of pilots, we may experience disruptions, increased costs of operations and other adverse effects.

Increases in insurance costs or reductions in insurance coverage may adversely impact our operations and financial results.

The terrorist attacks of September 11, 2001 led to a significant increase in insurance premiums and a decrease in the insurance coverage available to commercial air carriers. Accordingly, our insurance costs increased significantly, and our ability to continue to obtain insurance even at current prices remains uncertain. If we are unable to maintain adequate insurance coverage, our business could be materially and adversely affected. Additionally, severe disruptions in the domestic and global financial markets could adversely impact the claims paying ability of some insurers. Future downgrades in the ratings of enough insurers could adversely impact both the availability of appropriate insurance coverage and its cost. Because of competitive pressures in our industry, our ability to pass additional insurance costs to passengers is limited. As a result, further increases in insurance costs or reductions in available insurance coverage could have an adverse impact on our financial results.

We may be a party to litigation in the normal course of business or otherwise, which could affect our financial position and liquidity.

From time to time, we are a party to or otherwise involved in legal proceedings, claims and government inspections or investigations and other legal matters, both inside and outside the United States, arising in the ordinary course of our business or otherwise. We are currently involved in various legal proceedings and claims that have not yet been fully resolved and additional claims may arise in the future. Legal proceedings can be complex and take many months, or even years, to reach resolution, with the final outcome depending on a number of variables, some of which are not within our control. Litigation is subject to significant uncertainty and may be expensive, time-consuming, and disruptive to our operations. Although we will vigorously defend

ourselves in such legal proceedings, their ultimate resolution and potential financial and other impacts on us are uncertain. For these and other reasons, we may choose to settle legal proceedings and claims, regardless of their actual merit. If a legal proceeding is resolved against us, it could result in significant compensatory damages, and in certain circumstances punitive or trebled damages, disgorgement of revenue or profits, remedial corporate measures or injunctive relief imposed on us. If our existing insurance does not cover the amount or types of damages awarded, or if other resolution or actions taken as a result of the legal proceeding were to restrain our ability to operate or market our services, our consolidated financial position, results of operations or cash flows could be materially adversely affected. In addition, legal proceedings, and any adverse resolution thereof, can result in adverse publicity and damage to our reputation, which could adversely impact our business. Additional information regarding certain legal matters in which we are involved can be found in Part I, Item 3. Legal Proceedings.

Our ability to utilize our NOL Carryforwards may be limited.

Under the Internal Revenue Code of 1986, as amended (the Code), a corporation is generally allowed a deduction for net operating losses (NOLs) carried over from prior taxable years (NOL Carryforwards). As of December 31, 2015, we had available NOL Carryforwards of approximately $8.0 billion for regular federal income tax purposes which will expire, if unused, beginning in 2023, and approximately $4.0 billion for state income tax purposes which will expire, if unused, between 2016 and 2034. As of December 31, 2015, the amount of NOL Carryforwards for state income tax purposes that will expire, if unused, in 2016 is $136 million. Our NOL Carryforwards are subject to adjustment on audit by the Internal Revenue Service and the respective state taxing authorities.

A corporation’s ability to deduct its federal NOL Carryforwards and to utilize certain other available tax attributes can be substantially constrained under the general annual limitation rules of Section 382 of the Code (Section 382) if it undergoes an “ownership change” as defined in Section 382 (generally where cumulative stock ownership changes among material stockholders exceed 50 percent during a rolling three-year period). We experienced an ownership change in connection with our emergence from the Chapter 11 Cases and US Airways Group experienced an ownership change in connection with the Merger. The general limitation rules for a debtor in a bankruptcy case are liberalized where the ownership change occurs upon emergence from bankruptcy. We elected to be covered by certain special rules for federal income tax purposes that permitted approximately $9.0 billion (with $6.6 billion of unlimited NOL still remaining at December 31, 2015) of our federal NOL Carryforwards to be utilized without regard to the annual limitation generally imposed by Section 382. If the special rules are determined not to apply, our ability to utilize such federal NOL Carryforwards may be subject to limitation. Substantially all of our remaining federal NOL Carryforwards (attributable to US Airways Group and its subsidiaries) are subject to limitation under Section 382 as a result of the Merger; however, our ability to utilize such NOL Carryforwards is not anticipated to be effectively constrained as a result of such limitation. Similar limitations may apply for state income tax purposes.

Notwithstanding the foregoing, an ownership change subsequent to our emergence from the Chapter 11 Cases may severely limit or effectively eliminate our ability to utilize our NOL Carryforwards and other tax attributes. To reduce the risk of a potential adverse effect on our ability to utilize our NOL Carryforwards, our Certificate of Incorporation contains transfer restrictions applicable to certain substantial stockholders. Although the purpose of these transfer restrictions is to prevent an ownership change from occurring, no assurance can be given that such an ownership change will not occur, in which case our ability to utilize our NOL Carryforwards and other tax attributes could be severely limited or effectively eliminated.

Our ability to use our NOL Carryforwards also will depend on the amount of taxable income generated in future periods. The NOL Carryforwards may expire before we can generate sufficient taxable income to use them.

The application of the acquisition method of accounting resulted in AAG and American recording a significant amount of goodwill, which is tested for impairment at least annually. In addition, AAG and American may never realize the full value of their respective intangible assets or long-lived assets, causing them to record material impairment charges.

In accordance with applicable acquisition accounting rules, AAG and American recorded goodwill on their respective consolidated balance sheets to the extent the acquisition purchase price of US Airways Group and US Airways, respectively, exceeded the net fair value of the tangible and intangible assets and liabilities as of the applicable acquisition date. Goodwill is not amortized, but is tested for impairment at least annually. Also, in accordance with applicable accounting standards, AAG and American will be required to test their respective indefinite-lived intangible assets for impairment on an annual basis, or more frequently if conditions indicate that an impairment may have occurred. In addition, AAG and American are required to test certain of their other long-lived assets for impairment if conditions indicate that an impairment may have occurred.

Future impairment of goodwill or other long-lived assets could be recorded in results of operations as a result of changes in assumptions, estimates, or circumstances, some of which are beyond our control. Factors which could result in an impairment could include, but are not limited to: (i) reduced passenger demand as a result of domestic or global economic conditions; (ii) higher prices for jet fuel; (iii) lower fares or passenger yields as a result of increased competition or lower demand; (iv) a significant increase in future capital expenditure commitments; and (v) significant disruptions to our operations as a result of both internal and external events such as terrorist activities, actual or threatened war, labor actions by employees, or further industry regulation. There can be no assurance that a material impairment charge of goodwill or tangible or intangible assets will be avoided. The value of our aircraft could be impacted in future periods by changes in supply and demand for these aircraft. Such changes in supply and demand for certain aircraft types could result from grounding of aircraft by us or other airlines. An impairment charge could have a material adverse effect on our business, results of operations and financial condition.

Risks Relating to AAG’s Common Stock

The price of our common stock has recently been and may in the future be volatile.

The market price of AAG Common Stock may fluctuate substantially due to a variety of factors, many of which are beyond our control, including:

•

AAG’s operating and financial results failing to meet the expectations of securities analysts or investors;

•

changes in financial estimates or recommendations by securities analysts;

•

material announcements by us or our competitors;

•

movements in fuel prices;

•

expectations regarding our capital deployment program, including our share repurchase program and any future dividend payments that may be declared by our Board of Directors;

•

new regulatory pronouncements and changes in regulatory guidelines;

•

general and industry-specific economic conditions;

•

the success or failure of AAG’s integration efforts;

•

changes in our key personnel;

•

distributions of shares of AAG Common Stock pursuant to the Plan, including distributions from the Disputed Claims Reserve established under the plan of reorganization upon the resolution of the underlying claims;

•

public sales of a substantial number of shares of AAG Common Stock or issuances of AAG Common Stock upon the exercise or conversion of convertible securities, options, warrants, RSUs, SARs, or similar rights;

•

increases or decreases in reported holdings by insiders or other significant stockholders;

•

fluctuations in trading volume; and

•

changes in market values of airline companies as well as general market conditions.

We cannot guarantee that we will repurchase our common stock pursuant to our share repurchase program or continue to pay dividends on our common stock or that our capital deployment program will enhance long-term stockholder value. Our capital deployment program could increase the volatility of the price of our common stock and diminish our cash reserves.

Since July 2014, as part of our capital deployment program, our Board of Directors has approved several share repurchase programs aggregating $7.0 billion of authority of which, as of December 31, 2015, $2.4 billion remained unused under repurchase programs which are to be completed no later than December 31, 2016. Share repurchases under the repurchase programs may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades or accelerated share repurchase transactions. These share repurchase programs do not obligate us to acquire any specific number of shares or to repurchase any specific number of shares for any fixed period, and may be suspended at any time at our discretion. The timing and amount of repurchases, if any, will be subject to market and economic conditions, applicable legal requirements and other relevant factors. The repurchase program may be limited, suspended or discontinued at any time without prior notice.

Although our Board of Directors commenced declaring quarterly cash dividends in July 2014 as part of our capital deployment program, any future dividends that may be declared and paid from time to time under our capital deployment program will be subject to market and economic conditions, applicable legal requirements and other relevant factors. Our capital deployment program does not obligate us to continue a dividend for any fixed period, and payment of dividends may be suspended at any time at our discretion. We will continue to retain future earnings to develop our business, as opportunities arise, and evaluate on a quarterly basis the amount and timing of future dividends based on our operating results, financial condition, capital requirements and general business conditions. The amount and timing of any future dividends may vary, and the payment of any dividend does not assure that we will be able to pay dividends in the future.

In addition, repurchases of AAG Common Stock pursuant to our share repurchase program and any future dividends could affect our stock price and increase its volatility. The existence of a share repurchase program and any future dividends could cause our stock price to be higher than it would otherwise be and could potentially reduce the market liquidity for our stock. Additionally, our share repurchase program and any future dividends will diminish our cash reserves, which may impact our ability to finance future growth and to pursue possible future strategic opportunities and acquisitions. Further, our share repurchase program may fluctuate such that our cash flow may be insufficient to fully cover our share repurchases. Although our share repurchase program is intended to enhance long-term stockholder value, there is no assurance that it will do so because the market price of our common stock may decline below the levels at which we repurchased shares of stock and short-term stock price fluctuations could reduce the program’s effectiveness.

Certain provisions of AAG’s Certificate of Incorporation and Bylaws make it difficult for stockholders to change the composition of our Board of Directors and may discourage takeover attempts that some of our stockholders might consider beneficial.

Certain provisions of our Restated Certificate of Incorporation (Certificate of Incorporation) and Amended and Restated Bylaws (Bylaws) may have the effect of delaying or preventing changes in control if our Board of Directors determines that such changes in control are not in our best interest and the best interest of our stockholders. These provisions include, among other things, the following:

•

advance notice procedures for stockholder proposals to be considered at stockholders’ meetings;

•

the ability of our Board of Directors to fill vacancies on the board;

•

a prohibition against stockholders taking action by written consent;

•

a prohibition against stockholders calling special meetings of stockholders;

•

a requirement that holders of at least 80% of the voting power of the shares entitled to vote in the election of directors approve any amendment of our Bylaws submitted to stockholders for approval; and

•

super-majority voting requirements to modify or amend specified provisions of our Certificate of Incorporation.

These provisions are not intended to prevent a takeover, but are intended to protect and maximize the value of the interests of our stockholders. While these provisions have the effect of encouraging persons seeking to acquire control of our company to negotiate with our Board of Directors, they could enable our Board of Directors to prevent a transaction that some, or a majority, of our stockholders might believe to be in their best interests and, in that case, may prevent or discourage attempts to remove and replace incumbent directors. In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which prohibits business combinations with interested stockholders. Interested stockholders do not include stockholders whose acquisition of our securities is approved by the Board of Directors prior to the investment under Section 203.

AAG’s Certificate of Incorporation and Bylaws include provisions that limit voting and acquisition and disposition of our equity interests.

Our Certificate of Incorporation and Bylaws include certain provisions that limit voting and ownership and disposition of our equity interests, including AAG Common Stock, AAG Series A Preferred Stock and convertible notes. These restrictions may adversely affect the ability of certain holders of AAG Common Stock and our other equity interests to vote such interests and adversely affect the ability of persons to acquire shares of AAG Common Stock and our other equity interests.

In order to protect AAG’s NOL Carryforwards and certain other tax attributes, AAG’s Certificate of Incorporation includes certain limitations on acquisitions and dispositions of AAG’s Common Stock, which may limit the liquidity of our common stock.

To reduce the risk of a potential adverse effect on our ability to use our NOL Carryforwards and certain other tax attributes for federal income tax purposes, our Certificate of Incorporation contains certain restrictions on the acquisition and disposition of AAG Common Stock by substantial stockholders. These restrictions may adversely affect the ability of certain holders of AAG Common Stock to dispose of or acquire shares of AAG Common Stock. Although the purpose of these transfer restrictions is to prevent an “ownership change” (as defined in Section 382) from occurring, no assurance can be given that an ownership change will not occur even with these restrictions in place.

The historical consolidated financial information contained in this report is not directly comparable to our financial information for prior or future periods.

A number of factors render our historical consolidated financial information not directly comparable to our financial information for prior or future periods, including:

•

because the Merger was completed on December 9, 2013, AAG’s 2013 consolidated results of operations include the results of US Airways Group and its subsidiaries for only 23 days of 2013;

•

the Merger was accounted for using the acquisition method of accounting with AAG as the acquiring entity, resulting in an adjustment to the carrying values of the assets and liabilities of US Airways Group compared to its historical carrying values; and

•

during the course of our Chapter 11 Cases and in connection with our emergence from Chapter 11 and the effectiveness of the Plan, we recorded material expenses, charges, costs and other accounting entries related to our restructuring process, many of which generally had not been incurred in the past and are not expected to be incurred in the future.

Due to these and other factors largely related to the Merger and the Plan, investors are cautioned as to the limitations of our historical financial statements and urged to review carefully Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

The Company had no unresolved Securities and Exchange Commission staff comments at December 31, 2015.

ITEM 2. PROPERTIES

Flight Equipment and Fleet Renewal

As of December 31, 2015, American operated a mainline fleet of 946 aircraft. In 2015, we continued our extensive fleet renewal program, which has provided us with the youngest and most modern fleet of the U.S. network airlines. During 2015, American took delivery of 75 new mainline aircraft and retired 112 aircraft. We are supported by our wholly-owned regional airline subsidiaries and third-party regional carriers operating as American Eagle under capacity purchase agreements. As of December 31, 2015, American Eagle operated 587 regional aircraft. During 2015, American increased its regional fleet by 52 regional aircraft. We removed and placed in temporary storage 20 Embraer ERJ 140 aircraft and retired 11 other regional aircraft.

•

We continue retiring MD-80 aircraft from service, which are being replaced by next generation, more fuel efficient Boeing 737- 800 and Airbus 320 family aircraft.

•

In 2015, we introduced the Boeing 787 Dreamliner to our fleet. As of December 31, 2015, we had received 13 of these aircraft out of our order of 42 aircraft. The Boeing 787 aircraft is also more fuel efficient than similarly sized prior generation aircraft.

•

Beginning in 2012, American introduced Boeing 777-300ERs to its fleet. At the end of the year, we had received 18 of these aircraft and have 2 aircraft remaining to be delivered in 2016.

•

We expect to begin to receive the Boeing 737 MAX and Airbus A320neo family aircraft in 2017 and 2019, respectively, each of which will be powered by next generation engine technology and will provide significant fuel efficiency gains.

•

We are the North America launch customer for Airbus A350 aircraft and expect to receive 22 of these aircraft beginning in 2017.

Mainline

As of December 31, 2015, American’s mainline fleet consisted of the following aircraft:


	Average Seating Capacity		Operating Aircraft										Non- Operating Aircraft (2)
	Average Seating Capacity		Owned (1)		Capital Leased		Operating Leased		Total		Average Age (Years)		Non- Operating Aircraft (2)
Airbus A319		125		19		—		106		125		12		—
Airbus A320		150		10		—		45		55		15		4
Airbus A321		177		128		—		46		174		5		—
Airbus A330-200		258		15		—		—		15		4		—
Airbus A330-300		291		4		—		5		9		15		—
Boeing 737-800		159		103		19		142		264		7		—
Boeing 757-200		181		46		—		18		64		19		43
Boeing 767-300ER		213		39		—		6		45		21		10
Boeing 777-200ER		249		44		3		—		47		15		—
Boeing 777-300ER		310		16		—		2		18		2		—
Boeing 787-800		226		13		—		—		13		1		—
Embraer 190		99		20		—		—		20		8		—
McDonnell Douglas MD-80		140		59		11		27		97		23		53

Total				516		33		397		946		11		110

(1)	As of December 31, 2015, 370 owned aircraft are pledged as collateral for various secured financing agreements.

(2)	As of December 31, 2015, the majority of all non-operating aircraft are owned.

Regional

As of December 31, 2015, the fleet of our wholly-owned regional subsidiaries consisted of the following aircraft:


	Average Seating Capacity		Operating Aircraft										Non- Operating Aircraft (3)
	Average Seating Capacity		Owned (1)		Operating Leased		Total		Average Age (Years)		In Temporary Storage (2)		Non- Operating Aircraft (3)
Bombardier CRJ 200		50		12		23		35		12		—		—
Bombardier CRJ 700		65		54		7		61		10		—		—
Bombardier CRJ 900		76		36		—		36		1		—		—
De Havilland Dash 8-100		37		26		—		26		26		—		1
De Havilland Dash 8-300		50		—		11		11		24		—		—
Embraer ERJ 175		76		24		—		24		1		—		—
Embraer ERJ 140		44		14		—		14		13		45		—
Embraer ERJ 145		50		118		—		118		14		—		—
Saab 340B		34		—		—		—		—		—		29

Total				284		41		325		12		45		30

(1)	As of December 31, 2015, 207 owned aircraft are pledged as collateral for various secured financing agreements.

(2)	Aircraft in temporary storage are excluded in the count of operating aircraft.

(3)	As of December 31, 2015, all non-operating aircraft are owned.

Aircraft Purchase Commitments and Lease Expirations

Our committed mainline and regional aircraft orders and contractual lease expirations, for the capital and operating leased flight equipment included in the tables above, as of December 31, 2015, are presented in the table below.


	2016		2017		2018		2019		2020		2021 and Thereafter
Firm orders (1)		97		72		35		51		47		90
Contractual mainline lease expirations		12		33		23		31		19		312
Contractual wholly-owned regional subsidiaries lease expirations		—		3		3		10		15		10

(1)	Includes orders for regional jets as follows: 42 in 2016 and 12 in 2017. These aircraft may be operated by wholly-owned regional subsidiaries or leased to third-party regional carriers, which would operate the aircraft under capacity purchase arrangements.

We have agreements for 49 spare engines to be delivered in 2016 and beyond.

See Note 15 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 13 to American’s Consolidated Financial Statements in Part II, Item 8B for additional information on aircraft acquisition commitments, payments and options.

Third-Party Regional Carriers

As of December 31, 2015, aircraft contractually obligated to American with third-party regional carriers included:


Carrier	Number of Aircraft
Air Wisconsin Airlines Corporation		70	Regional jets
ExpressJet Airlines, Inc.		11	Regional jets
Mesa Airlines, Inc.		64	Regional jets
Republic Airline Inc.		105	Regional jets
SkyWest Airlines, Inc.		12	Regional jets

		262

See Note 15 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 13 to American’s Consolidated Financial Statements in Part II, Item 8B for additional information on our capacity purchase agreements with third-party regional carriers.

Other Information

For information concerning the estimated useful lives and residual values for owned aircraft, lease terms for leased aircraft and amortization relating to aircraft under capital leases, see Note 5 and Note 15 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 5 and Note 13 to American’s Consolidated Financial Statements in Part II, Item 8B.

Ground Properties

At each airport where we conduct flight operations, we lease passenger, operations and baggage handling space, generally from the airport operator, but in some cases on a subleased basis from other airlines. Our main operational facilities are associated with our hubs. At those locations and in other cities we serve, we maintain administrative offices, terminal, catering, cargo, training, maintenance and other facilities, in each case as necessary to support our operations in the particular city.

We own our corporate headquarters buildings in Fort Worth, Texas. We lease, or have built as leasehold improvements on leased property, most of our airport and terminal facilities in the U.S. and abroad, our training facilities in Fort Worth, Texas, our principal overhaul and maintenance base in Tulsa, Oklahoma, our regional reservation offices, and local ticket and administration offices throughout the U.S. and abroad. In September 2015, we completed construction on a new state-of-the-art Integrated Operations Control Center in Fort Worth, Texas, which serves as the new operations control facility for the combined airline. In October 2015, we announced plans to build a new headquarters campus in Fort Worth, Texas, with construction presently expected to be completed in late 2018.

For information concerning the estimated lives and residual values for owned ground properties, lease terms and amortization relating to ground properties under capital leases, and acquisitions of ground properties, see Note 5 and Note 15 to AAG’s Consolidated Financial Statements in Part II, Item 8A and Note 5 and Note 13 to American’s Consolidated Financial Statements in Part II, Item 8B.

ITEM 3. LEGAL PROCEEDINGS

Chapter 11 Cases. On the Petition Date, November 29, 2011, the Debtors filed the Chapter 11 Cases. On October 21, 2013, the Bankruptcy Court entered the Confirmation Order confirming the Plan. On the Effective Date, December 9, 2013, the Debtors consummated their reorganization pursuant to the Plan and completed the Merger. From the Petition Date through the Effective Date, pursuant to automatic stay provisions under the Bankruptcy Code and orders granted by the Bankruptcy Court, actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date as well as all pending litigation against the Debtors generally were stayed. Following the Effective Date, actions to enforce or otherwise effect repayment of liabilities preceding the Petition Date, generally have been permanently enjoined. Any unresolved claims will continue to be subject to the claims reconciliation process under the supervision of the Bankruptcy Court. However, certain pending litigation related to pre-petition liabilities may proceed in courts other than the Bankruptcy Court to determine the amount, if any, of such litigation claims for purposes of treatment under the Plan.

Pursuant to rulings of the Bankruptcy Court, the Plan established the Disputed Claims Reserve to hold shares of AAG Common Stock reserved for issuance to disputed claimholders at the Effective Date that ultimately become holders of allowed Single-Dip Unsecured Claims. The shares provided for under the Plan were determined based upon a Disputed Claims Reserve amount of claims of approximately $755 million, representing the maximum amount of additional distributions to subsequently allowed Single-Dip Unsecured Claims under the Plan. As of December 31, 2015, there were approximately 25.3 million shares of AAG Common Stock remaining in the Disputed Claims Reserve. As disputed claims are resolved, the claimants will receive distributions of shares from the Disputed Claims Reserve on the same basis as if such distributions had been made on or about the Effective Date. However, we are not required to distribute additional shares above the limits contemplated by the Plan, even if the shares remaining for distribution are not sufficient to fully pay any additional allowed unsecured claims. To the extent that any of the reserved shares remain undistributed upon resolution of all remaining disputed claims, such shares will not be returned to us but rather will be distributed to former AMR stockholders as of the Effective Date. However, resolution of disputed claims could have a material effect on recoveries by holders of additional allowed Single-Dip Unsecured Claims under the Plan and the amount of additional share distributions, if any, that are made to former AMR stockholders as the total number of shares of AAG Common Stock that remain available for distribution upon resolution of disputed claims is limited pursuant to the Plan.

There is also pending in the Bankruptcy Court an adversary proceeding relating to an action brought by American to seek a determination that certain non-pension, post-employment benefits (OPEB) are not vested benefits and thus may be modified or terminated without liability to American. On April 18, 2014, the Bankruptcy Court granted American’s motion for summary judgment with respect to certain non-union employees, concluding that their benefits were not vested and could be terminated. The summary judgment motion was denied with respect to all other retirees. The Bankruptcy Court has not yet scheduled a trial on the merits concerning whether those retirees’ benefits are vested, and American cannot predict whether it will receive relief from obligations to provide benefits to any of those retirees. Our financial statements presently reflect these retirement programs without giving effect to any modification or termination of benefits that may ultimately be implemented based upon the outcome of this proceeding. Separately, both the APFA and TWU have filed grievances asserting that American was “successful” in its Chapter 11 with respect to matters related to OPEB and, accordingly, by operation of the underlying collective bargaining agreements, American’s prior contributions to certain OPEB prefunding trusts attributable to active employees should be returned to those active employees. These amounts aggregate approximately $212 million. We have denied both grievances and intend to defend these matters vigorously.

DOJ Antitrust Civil Investigative Demand. In June 2015, we received a Civil Investigative Demand (CID) from the DOJ as part of an investigation into whether there have been illegal agreements or coordination of air passenger capacity. The CID seeks documents and other information from us, and other airlines have announced that they have received similar requests. We are cooperating fully with the DOJ investigation. In addition,

subsequent to announcement of the delivery of CIDs by the DOJ, we, along with Delta Air Lines, Inc., Southwest Airlines Co., United Airlines, Inc. and, in the case of litigation filed in Canada, Air Canada, have been named as defendants in approximately 100 putative class action lawsuits alleging unlawful agreements with respect to air passenger capacity. The U.S. lawsuits were the subject of multiple motions to consolidate them in a single forum, and they have now been consolidated in the Federal District Court for the District of Columbia. Both the DOJ investigation and these lawsuits are in their very early stages and we intend to defend the lawsuits vigorously.

Private Party Antitrust Action. On July 2, 2013, a lawsuit captioned Carolyn Fjord, et al., v. US Airways Group, Inc., et al., was filed in the United States District Court for the Northern District of California. The complaint named as defendants US Airways Group and US Airways, and alleged that the effect of the Merger may be to substantially lessen competition or tend to create a monopoly in violation of Section 7 of the Clayton Antitrust Act. The relief sought in the complaint included an injunction against the Merger, or divestiture. On August 6, 2013, the plaintiffs re-filed their complaint in the Bankruptcy Court, adding AMR and American as defendants, and on October 2, 2013, dismissed the initial California action. On November 27, 2013, the Bankruptcy Court denied plaintiffs’ motion to preliminarily enjoin the Merger. On August 19, 2015, after three previous largely unsuccessful attempts to amend their complaint, plaintiffs filed a fourth motion for leave to file an amended and supplemental complaint to add a claim for damages and demand for jury trial, as well as claims similar to those in the putative class action lawsuits regarding air passenger capacity. Thereafter, plaintiffs filed a request with the Judicial Panel on Multidistrict Litigation (JPML) to consolidate the Fjord matter with the putative class action lawsuits. The JPML denied that request on October 15, 2015 and plaintiffs’ request for further relief from the JPML was denied on February 4, 2016. Accordingly, the parties will continue to litigate the matter in Bankruptcy Court. We believe this lawsuit is without merit and intend to vigorously defend against the allegations.

DOJ Civil Investigative Demand Related to the United States Postal Service. In April 2015, the DOJ informed us of an inquiry regarding American’s 2009 and 2011 contracts with the United States Postal Service for the international transportation of mail by air. In October 2015, we received a CID from DOJ seeking certain information relating to these contracts. The DOJ has indicated it is investigating potential violations of the False Claims Act. We are cooperating fully with the DOJ investigation.

General. In addition to the specifically identified legal proceedings, we and our subsidiaries are also engaged in other legal proceedings from time to time. Legal proceedings can be complex and take many months, or even years, to reach resolution, with the final outcome depending on a number of variables, some of which are not within our control. Therefore, although we will vigorously defend ourselves in each of the actions described above and such other legal proceedings, their ultimate resolution and potential financial and other impacts on us are uncertain but could be material. See Part I, Item 1A. Risk Factors – “We may be a party to litigation in the normal course of business or otherwise, which could affect our financial position and liquidity.”

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

PART II

ITEM 5. MARKET FOR AMERICAN AIRLINES GROUP’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Stock Exchange Listing

Pursuant to the Plan and in accordance with the Merger Agreement, effective December 9, 2013, all existing shares of AMR Corporation common stock (OTCQB: AAMRQ) were canceled and ceased trading on the OTCQB market. The newly authorized and issued AAG Common Stock began trading on the NASDAQ Global Select Market (NASDAQ) on December 9, 2013 under the symbol “AAL.” There is no trading market for the common stock of American, which is a wholly-owned subsidiary of AAG.

As of February 19, 2016, the closing price of AAG Common Stock on NASDAQ was $39.76. As of February 19, 2016, there were 11,546 holders of record of AAG Common Stock.

Information on securities authorized for issuance under our equity compensation plans will be set forth in our Proxy Statement for the 2016 Annual Meeting of Stockholders of American Airlines Group Inc. (the Proxy Statement) under the caption “Equity Compensation Plan Information” and is incorporated by reference into this Annual Report on Form 10-K.

Market Prices of Common Stock

The following table sets forth, for the periods indicated, the high and low sale prices of AAG Common Stock on NASDAQ:


Year Ended December 31	Period	High		Low
2015	Fourth Quarter	$	47.09	$	37.42
	Third Quarter		44.59		34.10
	Second Quarter		53.47		38.45
	First Quarter		56.20		45.95
2014	Fourth Quarter	$	54.64	$	28.10
	Third Quarter		44.00		34.34
	Second Quarter		44.88		31.86
	First Quarter		39.88		25.06

Cash Dividends Paid

Our Board of Directors declared the following cash dividends:


Year Ended December 31	Period	Per share		For stockholders of record as of	Payable on
2015	Fourth Quarter	$	0.10	November 5, 2015	November 19, 2015
	Third Quarter		0.10	August 10, 2015	August 24, 2015
	Second Quarter		0.10	May 4, 2015	May 18, 2015
	First Quarter		0.10	February 9, 2015	February 23, 2015
2014	Fourth Quarter	$	0.10	November 3, 2014	November 17, 2014
	Third Quarter		0.10	August 4, 2014	August 18, 2014

In January 2016, we announced that our Board of Directors had declared a $0.10 per share dividend for stockholders of record on February 10, 2016, and payable on February 24, 2016.

The total cash payment for dividends during the years ended December 31, 2015 and 2014 was $278 million and $144 million, respectively. Any future dividends that may be declared and paid from time to time under our

capital deployment program will be subject to market and economic conditions, applicable legal requirements and other relevant factors. Our capital deployment program does not obligate us to continue a dividend for any fixed period, and payment of dividends may be suspended at any time at our discretion.

Stock Performance Graph

The following stock performance graph and related information shall not be deemed “soliciting material” or “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filings under the Securities Act of 1933 or the Exchange Act, each as amended, except to the extent that we specifically incorporate it by reference into such filing.

The following stock performance graph compares our cumulative total stockholder return on an annual basis on our common stock with the cumulative total return on the Standard and Poor’s 500 Stock Index and the AMEX Airline Index from December 9, 2013 (the first trading day of AAG Common Stock) through December 31, 2015. The comparison assumes $100 was invested on December 9, 2013 in AAG Common Stock and in each of the foregoing indices and assumes reinvestment of dividends. The stock performance shown on the graph below represents historical stock performance and is not necessarily indicative of future stock price performance.

LOGO


	12/9/2013		12/31/2013		12/31/2014		12/31/2015
American Airlines Group Inc.	$	100	$	103	$	219	$	175
Amex Airline Index		100		102		152		127
S&P 500		100		102		114		113

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Since July 2014, our Board of Directors has approved several share repurchase programs aggregating $7.0 billion of authority of which, as of December 31, 2015, $2.4 billion remained unused under repurchase programs

which are to be completed no later than December 31, 2016. Share repurchases under the repurchase programs may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades or accelerated share repurchase transactions. Any such repurchases will be made from time to time subject to market and economic conditions, applicable legal requirements and other relevant factors. The programs do not obligate us to repurchase any specific number of shares and may be suspended at any time at our discretion.

During the year ended December 31, 2015, we repurchased 85.1 million shares of AAG Common Stock for $3.6 billion at a weighted average cost per share of $42.09. During the year ended December 31, 2014, we repurchased 23.4 million shares of AAG Common Stock for $1.0 billion at a weighted average cost per share of $42.72. Since the inception of the share repurchase programs in July 2014, we have repurchased 108.5 million shares of AAG Common Stock for $4.6 billion at a weighted average cost per share of $42.23.

Separate from our share repurchase programs, during 2015, we also withheld approximately 7.0 million shares of AAG Common Stock and paid approximately $306 million in satisfaction of certain tax withholding obligations associated with employee equity awards.

The following table displays information with respect to our purchases of shares of AAG Common Stock during the three months ended December 31, 2015.


Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plan or program		Maximum dollar value of shares that may be purchased under the plan or program (in millions)
October 2015		12,965,702	$	41.54		12,965,702	$	2,961
November 2015		5,623,408	$	43.10		5,623,408	$	2,718
December 2015		7,002,827	$	43.07		7,002,827	$	2,417

Ownership Restrictions

AAG’s Certificate of Incorporation and Bylaws provide that, consistent with the requirements of Subtitle VII of Title 49 of the United States Code, as amended, or as the same may be from time to time amended (the Aviation Act), any persons or entities who are not a “citizen of the United States” (as defined under the Aviation Act and administrative interpretations issued by the DOT, its predecessors and successors, from time to time), including any agent, trustee or representative of such persons or entities (a non-citizen), shall not, in the aggregate, own (beneficially or of record) and/or control more than (a) 24.9% of the aggregate votes of all of our outstanding equity securities (as defined, which definition includes our capital stock, securities convertible into or exchangeable for shares of our capital stock, including our outstanding convertible notes, and any options, warrants or other rights to acquire capital stock) (the voting cap amount) or (b) 49.0% of our outstanding equity securities (the absolute cap amount). If non-citizens nonetheless at any time own and/or control more than the voting cap amount, the voting rights of the equity securities in excess of the voting cap amount shall be automatically suspended in accordance with the provisions of our Certificate of Incorporation and Bylaws. Voting rights of equity securities, if any, owned (beneficially or of record) by non-citizens shall be suspended in reverse chronological order based upon the date of registration in the foreign stock record. Further, if at any time a transfer of equity securities to a non-citizen would result in non-citizens owning more than the absolute cap amount, such transfer shall be void and of no effect, in accordance with provisions of AAG’s Certificate of Incorporation and Bylaws. In the event that we determine that the equity securities registered on the foreign stock record or the stock records of the Company exceed the absolute cap amount, sufficient shares shall be removed from the foreign stock record and the stock records of the Company so that the number of shares entered therein does not exceed the absolute cap amount. Shares of equity securities shall be removed from the foreign stock record and the stock records of the Company in reverse chronological order based on the date of registration in the foreign stock record and the stock records of the Company (subject to Article XIII, Section 6 of our Bylaws, which provides special rules applicable to equity securities issued upon effectiveness of the Plan and

consummation of the Merger). Certificates for AAG’s equity securities must bear a legend set forth in our Certificate of Incorporation stating that such equity securities are subject to the foregoing restrictions. Under our Bylaws, it is the duty of each stockholder who is a non-citizen to register his, her or its equity securities on our foreign stock record. In addition, our Bylaws provide that in the event that non-citizens shall own (beneficially or of record) or have voting control over any equity securities, the voting rights of such persons shall be subject to automatic suspension to the extent required to ensure that we are in compliance with applicable provisions of law and regulations relating to ownership or control of a U.S. air carrier. See AAG’s Certificate of Incorporation and Bylaws, which are filed at Exhibits 3.1 and 3.2 hereto.

In addition, to reduce the risk of a potential adverse effect on our ability to use our NOL Carryforwards and certain other tax attributes for federal income tax purposes, our Certificate of Incorporation contains certain restrictions on the acquisition and disposition of our common stock by substantial stockholders (generally holders of more than 4.75%).

See Part I, Item 1A. Risk Factors – “AAG’s Certificate of Incorporation and Bylaws include provisions that limit voting and acquisition and disposition of our equity interests,” and “In order to protect AAG’s NOL Carryforwards and certain other tax attributes, AAG’s Certificate of Incorporation includes certain limitations on acquisitions and dispositions of AAG’s Common Stock, which may limit the liquidity of our common stock.”

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

Selected Consolidated Financial Data of AAG

The selected consolidated financial data presented below under the captions “Consolidated Statements of Operations data” and “Consolidated Balance Sheet data” for the years ended December 31, 2015, 2014 and 2013 and as of December 31, 2015 and 2014 are derived from AAG’s audited consolidated financial statements included elsewhere in this report. The selected consolidated financial data for the years ended December 31, 2012 and 2011 and as of December 31, 2013, 2012 and 2011 are derived from AAG’s audited consolidated financial statements not included in this report. The selected consolidated financial data should be read in conjunction with AAG’s consolidated financial statements for the respective periods, the related notes and the related reports of KPMG LLP for 2015 and 2014 and Ernst & Young LLP for 2011 to 2013, both independent registered public accounting firms. On December 9, 2013, a subsidiary of AMR Corporation merged with and into US Airways Group, which survived as a wholly-owned subsidiary of AAG. On December 30, 2015, in order to simplify AAG’s internal corporate structure and as part of the integration efforts following the business combination of AAG and US Airways Group, AAG caused US Airways Group to be merged with and into AAG, with AAG as the surviving corporation, and, immediately thereafter, US Airways, a subsidiary of US Airways Group, merged with and into American, with American as the surviving corporation. AAG’s consolidated financial data provided in the tables below include the results of US Airways Group beginning on December 9, 2013, the effective date of the Merger.

Pursuant to the Plan and the Merger Agreement, holders of AMR common stock formerly traded under the symbol “AAMRQ” received shares of AAG Common Stock principally over the 120-day distribution period following the Effective Date. In accordance with U.S. Generally Accepted Accounting Principles (GAAP), the 2013, 2012 and 2011 weighted average shares and earnings (loss) per share calculations have been adjusted to retrospectively reflect these distributions, which were each made at the rate of approximately 0.7441 shares of AAG Common Stock per share of AAMRQ. Former holders of AMR common stock as of the Effective Date may in the future receive additional distributions of AAG Common Stock dependent upon the ultimate distribution of shares of AAG Common Stock to holders of disputed claims. Thus, the shares and related earnings per share calculations prior to the Effective Date may change in the future to reflect additional retrospective adjustments for future AAG Common Stock distributions to former holders of AMR common stock.


	Year Ended December 31,
	2015		2014		2013			2012			2011
	(In millions, except share and per share data)
Consolidated Statements of Operations data:
Total operating revenues	$	40,990	$	42,650	$	26,743		$	24,855		$	23,979
Total operating expenses		34,786		38,401		25,344			24,707			25,016

Operating income (loss)	$	6,204	$	4,249	$	1,399		$	148		$	(1,037	)
Reorganization items, net (1)	$	—	$	—	$	(2,655	)	$	(2,208	)	$	(118	)
Net income (loss)	$	7,610	$	2,882	$	(1,834	)	$	(1,876	)	$	(1,979	)
Earnings (loss) per common share:
Basic	$	11.39	$	4.02	$	(6.54	)	$	(7.52	)	$	(7.95	)
Diluted	$	11.07	$	3.93	$	(6.54	)	$	(7.52	)	$	(7.95	)
Shares used for computation (in thousands):
Basic		668,393		717,456		280,213			249,490			249,000
Diluted		687,355		734,016		280,213			249,490			249,000
Cash dividends declared per common share	$	0.40	$	0.20	$	—		$	—		$	—
Consolidated Balance Sheet data (at end of period):
Total assets	$	48,415	$	43,225	$	41,741		$	23,396		$	23,719
Long-term debt and capital leases, net of current maturities		18,330		16,043		15,212			7,019			6,592
Pension and postretirement benefits (2)		7,450		7,562		5,828			6,780			9,204
Mandatorily convertible preferred stock and other bankruptcy settlement obligations		193		325		5,928			—			—
Liabilities subject to compromise		—		—		—			6,606			4,843
Stockholders’ equity (deficit)		5,635		2,021		(2,731	)		(7,987	)		(7,111	)
Consolidated Statements of Operations data excluding special items (3) (Unaudited):
Operating income (loss) excluding special items	$	7,284	$	5,073	$	1,935		$	535		$	(238	)
Net income (loss) excluding special items		6,269		4,184		1,244			(130	)		(1,062	)

(1)

Reorganization items refer to revenues, expenses (including professional fees), realized gains and losses and provisions for losses that were realized or incurred as a direct result of the Chapter 11 Cases. See Note 2 in Part II, Item 8A to AAG’s Consolidated Financial Statements for further information on reorganization items.

(2)

Substantially all defined benefit pension plans were frozen effective November 1, 2012. Further, we significantly modified our retiree medical plans in 2012 resulting in the recognition of a negative plan amendment. See Note 13 in Part II, Item 8A to AAG’s Consolidated Financial Statements for further information on retirement benefits, including the financial impact of these plan changes.

(3)	See reconciliation of GAAP to non-GAAP financial measures below.

A number of factors render AAG’s historical consolidated financial information not directly comparable to its financial information for prior or future periods. See Part I, Item 1A. Risk Factors – “The historical consolidated financial information contained in this report is not directly comparable to our financial information for prior or future periods,” and Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the notes to AAG’s Consolidated Financial Statements in Part II, Item 8A.

Reconciliation of GAAP to Non-GAAP Financial Measures

We are providing disclosure of the reconciliation of reported non-GAAP financial measures to their comparable financial measures on a GAAP basis. We believe that the non-GAAP financial measures provide investors the ability to measure financial performance excluding special items, which is more indicative of our ongoing performance and is more comparable to measures reported by other major airlines.


	Year Ended December 31,
	2015			2014		2013			2012			2011
	(In millions)
Operating income (loss) – GAAP	$	6,204		$	4,249	$	1,399		$	148		$	(1,037	)
Operating special items, net (1)		1,080			824		536			387			799

Operating income (loss) excluding special items	$	7,284		$	5,073	$	1,935		$	535		$	(238	)
Net income (loss) – GAAP	$	7,610		$	2,882	$	(1,834	)	$	(1,876	)	$	(1,979	)
Operating special items, net (1)		1,080			824		536			387			799
Nonoperating special items, net (2)		594			132		211			(280	)		—
Reorganization items, net (3)		—			—		2,655			2,208			118
Income tax special items (4)		(3,015	)		346		(324	)		(569	)		—

Net income (loss) excluding special items	$	6,269		$	4,184	$	1,244		$	(130	)	$	(1,062	)

(1)	Includes the following operating special items, net:

•

In 2015, special items principally included $1.1 billion of merger integration expenses related to information technology, alignment of labor union contracts, professional fees, severance, share-based compensation, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training.

•

In 2014, special items principally included $818 million of merger integration expenses related to information technology, alignment of labor union contracts, professional fees, severance and retention, share-based compensation, divestiture of London Heathrow slots, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training. In addition, we recorded a net charge of $81 million for bankruptcy related items principally consisting of fair value adjustments for bankruptcy settlement obligations and an $81 million charge to revise prior estimates of certain aircraft residual values and other spare parts asset impairments. These charges were offset in part by a $309 million gain on the sale of slots at DCA.

•

In 2013, special items included $449 million of merger related expenses related to the alignment of labor union contracts, professional fees, severance, share-based compensation and fees for US Airways to exit the Star Alliance and its codeshare agreement with United Airlines. In addition, we recorded a $107 million charge related to American’s pilot long-term disability obligation, a $45 million charge for workers’ compensation claims and a $33 million aircraft impairment charge. These charges were offset in part by a $67 million gain on the sale of slots at LGA and a $31 million special credit related to a change in accounting method resulting from the modification of our AAdvantage miles agreement with Citibank.

•

In 2012, special items consisted of $387 million of severance and related charges and write-off of leasehold improvements on aircraft and airport facilities that were rejected in connection with the Chapter 11 Cases.

•

In 2011, special items consisted primarily of $725 million related to the impairment of certain aircraft and gates, $31 million of non-recurring non-cash charges related to certain sale-leaseback transactions and a $43 million revenue reduction as a result of a decrease in the breakage assumption related to the AAdvantage loyalty program liability.

(2)	Includes the following nonoperating special items, net:

•

In 2015, special items principally included a $592 million charge to write off all of the value of Venezuelan bolivars held by us due to continued lack of repatriations and deterioration of economic conditions in Venezuela.

•

In 2014, special items consisted principally of $43 million for Venezuelan foreign currency losses, $56 million of early debt extinguishment costs related to the prepayment of 7.50% senior secured notes and other indebtedness and $33 million of non-cash interest accretion on bankruptcy settlement obligations.

•

In 2013, special items consisted of interest charges of $138 million primarily to recognize post-petition interest expense on unsecured obligations pursuant to the Plan and penalty interest related to 10.5% secured notes and 7.50% senior secured notes, a $54 million charge related to the premium on tender for existing enhanced equipment trust certificate (EETC) financings and the write-off of debt issuance costs and $19 million in charges related to the repayment of existing EETC financings.

•

In 2012, special items consisted of a $280 million benefit resulting from a settlement of a commercial dispute.

(3)	Includes the following reorganization items, net resulting from the filing of voluntary petitions for reorganization under Chapter 11 by certain of AMR’s direct and indirect U.S. subsidiaries on November 29, 2011:

•

In 2013, special items consisted primarily of a $1.7 billion deemed claim to employees pursuant to the Plan as well as professional fees and estimated allowed claim amounts.

•

In 2012 and 2011 special items consisted primarily of estimated claims associated with restructuring the financing arrangements for certain debt, aircraft leases, and rejecting certain special facility revenue bonds, as well as professional fees.

(4)	Includes the following income tax special items:

•

In 2015, special items totaled a net credit of $3.0 billion. In connection with the preparation of our financial statements for the fourth quarter of 2015, we determined that it was more likely than not that substantially all of our deferred tax assets, which include our NOLs, would be realized. Accordingly, we reversed $3.0 billion of the valuation allowance as of December 31, 2015, which resulted in a special $3.0 billion non-cash tax benefit recorded in the consolidated statement of operations for 2015.

•

In 2014, special items consisted of $346 million. During 2014, we sold our portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, we recorded a special non-cash tax provision of $330 million in the second quarter of 2014 that reversed the non-cash tax provision which was recorded in other comprehensive income (OCI), a subset of stockholders’ equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of our fuel hedging contracts. In accordance with GAAP, we retained the $330 million tax provision in OCI until the last contract was settled or terminated.

•

In 2013, special items consisted of a $538 million non-cash income tax benefit resulting from gains recorded in OCI, offset in part by a $214 million non-cash charge due to additional valuation allowance required to reduce deferred tax assets.

•

In 2012, special items consisted of a $569 million non-cash income tax benefit resulting from gains recorded in OCI.

Selected Consolidated Financial Data of American

The selected consolidated financial data presented below under the captions “Consolidated Statements of Operations data” and “Consolidated Balance Sheet data” for the years ended December 31, 2015, 2014 and 2013 and as of December 31, 2015 and 2014 are derived from American’s audited consolidated financial statements included elsewhere in this report. The selected consolidated financial data for the years ended December 31, 2012 and 2011 and as of December 31, 2013, 2012 and 2011 are derived from American’s audited consolidated financial statements not included in this report. On December 30, 2015, US Airways merged with and into American, with American as the surviving corporation. For financial reporting purposes, this transaction constituted a transfer of assets between entities under common control and is reflected in American’s consolidated financial statements as though the transaction had occurred on December 9, 2013, when a subsidiary of AMR merged with and into US Airways Group, which represents the earliest date that American and US Airways were under common control. Thus, the full years of 2015 and 2014 and the period from December 9, 2013 to December 31, 2013 are comprised of the financial data of American and US Airways. The periods prior to December 9, 2013 are comprised of the financial data of American only. The selected consolidated financial data should be read in conjunction with American’s consolidated financial statements for the respective periods, the related notes and the related reports of KPMG LLP for 2015 and 2014 and Ernst & Young LLP for 2011 to 2013, both independent registered public accounting firms.


	Year Ended December 31,
	2015		2014		2013			2012			2011
	(In millions)
Consolidated Statements of Operations data (1):
Total operating revenues	$	41,084	$	42,763	$	26,701		$	24,825		$	23,957
Total operating expenses		34,895		38,497		25,341			24,743			25,111

Operating income (loss)	$	6,189	$	4,266	$	1,360		$	82		$	(1,154	)
Reorganization items, net (2)	$	—	$	—	$	(2,640	)	$	(2,179	)	$	(116	)
Net income (loss)	$	8,120	$	2,948	$	(1,717	)	$	(1,926	)	$	(1,965	)
Consolidated Balance Sheet data (at end of period):
Total assets	$	50,438	$	42,786	$	41,699		$	23,150		$	23,460
Long-term debt and capital leases, net of current maturities		16,592		14,804		14,718			7,046			6,619
Pension and postretirement benefits (3)		7,410		7,522		5,802			6,780			9,204
Bankruptcy settlement obligations		193		325		5,424			—			—
Liabilities subject to compromise		—		—		—			5,694			3,952
Stockholder’s equity (deficit)		9,698		1,406		(4,398	)		(9,962	)		(9,037	)

(1)	Includes the following special items:

•

In 2015, total special items were a net credit of $1.8 billion and consisted principally of a net special $3.5 billion non-cash tax benefit. In connection with the preparation of American’s financial statements for the fourth quarter of 2015, management determined that it was more likely than not that substantially all of its deferred tax assets, which include its NOLs, would be realized. Accordingly, American reversed $3.5 billion of the valuation allowance as of December 31, 2015, which resulted in a special $3.5 billion non-cash tax benefit recorded in the consolidated statement of operations for 2015. These credits were offset in part by $1.1 billion of merger integration expenses related to information technology, alignment of labor union contracts, professional fees, severance, share-based compensation,

fleet restructuring, re-branding of aircraft and airport facilities, relocation and training. In addition, American recorded a nonoperating charge of $592 million to write off all of the value of Venezuelan bolivars held by American due to continued lack of repatriations and deterioration of economic conditions in Venezuela.

•

In 2014, total special items were $1.3 billion and consisted principally of $808 million of merger integration expenses related to information technology, alignment of labor union contracts, professional fees, severance and retention, share-based compensation, divestiture of London Heathrow slots, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training, a $328 million non-cash tax charge relating to the sale of American’s portfolio of fuel hedging contracts, an $81 million charge to revise prior estimates of certain aircraft residual values and other spare parts asset impairments and $60 million for bankruptcy related items. These charges were offset in part by a $309 million gain on the sale of slots at DCA.

•

In 2013, total special items were $325 million, excluding reorganization items, net and consisted of a $214 million non-cash tax charge due to additional valuation allowance required to reduce deferred tax assets, $443 million of merger related expenses related to the alignment of labor union contracts, professional fees, severance and share-based compensation, a $107 million charge related to American’s pilot long-term disability obligation, a $54 million charge related to the premium on tender for existing EETC financings and the write-off of debt issuance costs, $48 million of interest charges primarily to recognize post-petition interest expense on unsecured obligations pursuant to the Plan, a $43 million charge for workers’ compensation claims, a $33 million aircraft impairment charge and $19 million in charges related to the repayment of existing EETC financings. These charges were offset in part by a $538 million non-cash income tax benefit resulting from gains recorded in OCI, a $67 million gain on the sale of slots at LGA and a $31 million special credit related to a change in accounting method resulting from the modification of American’s AAdvantage miles agreement with Citibank.

•

In 2012, total special items were $463 million, excluding reorganization items, net and consisted primarily of a $569 million non-cash income tax benefit resulting from gains recorded in OCI and a $280 million benefit from a settlement of a commercial dispute, offset in part by $386 million of severance and related charges and write-off of leasehold improvements on aircraft and airport facilities that were rejected in connection with the Chapter 11 Cases.

•

In 2011, total special items were $799 million, excluding reorganization items, net and consisted primarily of $725 million related to the impairment of certain aircraft and gates, $31 million of non-recurring non-cash charges related to certain sale-leaseback transactions and a $43 million revenue reduction as a result of a decrease in the breakage assumption related to the AAdvantage loyalty program liability.

(2)

Reorganization items, net refer to revenues, expenses (including professional fees), realized gains and losses and provisions for losses that are realized or incurred as a direct result of the Chapter 11 Cases. See Note 2 in Part II, Item 8B to American’s Consolidated Financial Statements for further information on reorganization items.

(3)

Substantially all defined benefit pension plans were frozen effective November 1, 2012. Further, American significantly modified its retiree medical plans in 2012 resulting in the recognition of a negative plan amendment. See Note 11 to American’s Consolidated Financial Statements in Part II, Item 8B for further information on retirement benefits, including the financial impact of these plan changes.

A number of factors render American’s historical consolidated financial information not directly comparable to its financial information for prior or future periods. See Part I, Item 1A. Risk Factors – “The historical consolidated financial information contained in this report is not directly comparable to our financial information for prior or future periods,” and Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the notes to American’s Consolidated Financial Statements in Part II, Item 8B.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

American Airlines Group

American Airlines and American Eagle offer an average of nearly 6,700 flights per day to nearly 350 destinations in more than 50 countries. American has hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington, D.C. American is a founding member of the oneworld alliance, whose members and members-elect serve nearly 1,000 destinations with 14,250 daily flights to 150 countries. In 2015, approximately 201 million passengers boarded our mainline and regional flights. As of December 31, 2015, we operated 946 mainline aircraft and were supported by our regional airline subsidiaries and third-party regional carriers, which operated an additional 587 regional aircraft.

As previously discussed, our Merger was consummated on December 9, 2013. Since the Merger, we have made significant progress towards completing our integration. During 2015, we achieved the following:

•

Adopted a single reservations system, which when completed, resulted in no operational or customer disruption

•

Reached ratified contracts with industry-leading pay rates for pilots, flight attendants and customer service and reservation agents

•

Received a single operating certificate from the Federal Aviation Administration, allowing American to be regulated as one airline

•

Merged loyalty programs by moving US Airways Dividend Miles members into AAdvantage

•

Opened the new state-of-the-art Robert W. Baker Integrated Operations Center in Fort Worth

•

Optimized the airline’s flight schedules at Chicago O’Hare International Airport and Dallas/Fort Worth International Airport

•

Substantially completed the co-location of our airport operations and consolidated all mainline operations at Dallas/Fort Worth International Airport into three terminals, gaining efficiencies in gate use and line maintenance

•

Announced plans to masterplan our Fort Worth campus and build a new corporate headquarters building to begin the process of modernizing our facilities and co-locate our headquarters staff with our training functions and integrated operations support teams

Year in Review

The U.S. Airline Industry

In 2015, the U.S. airline industry benefited significantly from lower fuel prices. However, this benefit was offset in part by a decline in revenues driven by reduced yields.

American Airlines Group

Driven by substantially lower fuel costs, we realized operating income of $6.2 billion and net income of $7.6 billion in 2015. This compares to operating income of $4.2 billion and net income of $2.9 billion in 2014. As a result of not hedging our fuel consumption, we fully benefited from the decline in fuel prices.

Excluding the effects of net special charges (credits), we recognized operating income of $7.3 billion and net income of $6.3 billion in 2015 as compared to operating income of $5.1 billion and net income of $4.2 billion in 2014. This represents improvements of 44% and 50%, respectively, in operating income and net income in 2015.


	Year Ended December 31,					Percent Increase (Decrease)
	2015			2014		Percent Increase (Decrease)
	(In millions, except percentage changes)
Mainline and regional passenger revenues	$	35,512		$	37,124		(4.3	)
Total operating revenues	$	40,990		$	42,650		(3.9	)
Mainline and regional aircraft fuel and related taxes	$	7,456		$	12,601		(40.8	)
Total operating expenses	$	34,786		$	38,401		(9.4	)
Operating income	$	6,204		$	4,249		46.0
Net income	$	7,610		$	2,882		nm

Special items: (1)
Operating special charges, net	$	1,080		$	824
Nonoperating special charges, net		594			132
Income tax special charges (credits), net		(3,015	)		346

Total net special charges (credits)	$	(1,341	)	$	1,302

(1)

AAG’s 2015 results were impacted by a net special credit of $1.3 billion, consisting principally of a $3.0 billion non-cash tax benefit related to the reversal of the Company’s valuation allowance for its deferred tax assets. This credit was offset in part by $1.1 billion of operating special charges, consisting principally of merger integration expenses and a $592 million charge related to a write off of the value of Venezuelan bolivars held. See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – “AAG’s Results of Operations” of this report for more information on net special items.

Revenue

In 2015, we reported operating revenues of $41.0 billion. Mainline and regional passenger revenues were $35.5 billion, a decrease of $1.6 billion, or 4.3%, as compared to 2014. The decline in revenues was driven by a 6.5% decrease in yield due to competitive growth in certain domestic markets, including Dallas/Fort Worth and international weakness resulting from foreign currency devaluation relative to the U.S. dollar, lower fuel surcharges, and continued economic softness in Latin America, particularly in Brazil and Venezuela. Our mainline and regional passenger revenue per available seat mile (PRASM) was 13.21 cents in 2015, a 5.4% decrease, as compared to 13.97 cents in 2014.

Fuel

Mainline and regional fuel expense totaled $7.5 billion in 2015, which was $5.1 billion, or 40.8%, lower as compared to 2014. This decrease was driven by a 40.7% decrease in the average price per gallon of fuel to $1.72 in 2015 from $2.91 in 2014.

Cost Control

We remain committed to actively managing our cost structure, which we believe is necessary in an industry whose economic prospects are heavily dependent upon two variables we cannot control: the health of the economy and the price of fuel. Our 2015 mainline cost per available seat mile (CASM) excluding special items and fuel was 8.99 cents, an increase of 4.2% as compared to 2014. The increase was primarily due to higher salaries, wages and benefits driven by new merger related labor contracts with industry-leading pay rates. See below for the “Reconciliation of GAAP Financial Information to Non-GAAP Financial Information.”

Customer Service


	December 31,				Better (Worse)
	2015		2014		Better (Worse)
On-time performance (a)		80.1		77.9		2.2	pts
Completion factor (b)		98.4		98.4		—	pts
Mishandled baggage (c)		3.97		3.77		(5.3	)%
Customer complaints (d)		3.22		2.12		(51.9	)%

(a)	Percentage of reported flight operations arriving less than 15 minutes after the scheduled arrival time.

(b)	Percentage of scheduled flight operations completed.

(c)	Rate of mishandled baggage reports per 1,000 passengers.

(d)	Rate of customer complaints filed with the DOT per 100,000 enplanements.

Liquidity Position

As of December 31, 2015, AAG’s total cash, short-term investments and restricted cash and short-term investments were $6.9 billion, of which $695 million was restricted. We also had $2.4 billion of undrawn revolving line of credit facilities.


	December 31,
	2015		2014
	(In millions)
Cash and short-term investments (1)	$	6,254	$	7,303
Restricted cash and short-term investments (2)		695		774

Total cash, short-term investments and restricted cash and short-term investments	$	6,949	$	8,077

(1)

In the fourth quarter of 2015, we recognized a $592 million special charge to write off all of the value of Venezuelan bolivars held by us, due to continued lack of repatriations and deterioration of economic conditions in Venezuela. During 2014, we significantly reduced capacity in the Venezuelan market and we no longer accept bolivars as payment for airline tickets.

(2)	Restricted cash and short-term investments primarily include cash collateral to secure workers’ compensation obligations.

In 2015, we utilized cash generated from operations to invest in our airline. We continued our fleet renewal program by investing more than $5.3 billion in new aircraft, which has provided us with the youngest and most modern fleet of the U.S. network airlines. In 2015, we took delivery of 75 new mainline aircraft while retiring 112 aircraft. We also added 52 regional aircraft to our fleet and removed 31 regional aircraft.

In 2015, we returned $3.9 billion to our shareholders through the payment of $278 million in quarterly dividends and the repurchase of $3.6 billion of common stock, or 85.1 million shares. In addition, in 2015 we elected to pay approximately $306 million in satisfaction of certain tax withholding obligations associated with equity awards, further reducing the share count by 7.0 million.

These cash outflows were offset in part by proceeds from financing transactions, principally aircraft related. We ended the year with $8.7 billion in available liquidity (including available lines of credit). We believe it is important to retain liquidity levels above our network peers as we expect capital expenditures of approximately $4.5 billion in each of 2016 and 2017 as we continue our fleet renewal program. See Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – “Commitments” for further discussion of 2015 financing transactions and our contractual commitments.

2016 Outlook

We have taken significant actions to restore our competitiveness and to complete our integration. Although it is difficult to predict the price of oil or the strength of the economy, we believe that our 2015 financial results are evidence of the substantial progress we have made and can continue to build on.

Reconciliation of GAAP Financial Information to Non-GAAP Financial Information

We believe that the presentation of mainline CASM excluding fuel is useful to investors as both the cost and availability of fuel are subject to many economic and political factors beyond our control, and the exclusion of special items provides investors the ability to measure financial performance in a way that is more indicative of our ongoing performance and is more comparable to measures reported by other major airlines. Management uses mainline CASM excluding special items and fuel to evaluate our operating performance. Amounts may not recalculate due to rounding.


	Year Ended December 31,
	2015			2014
	(In millions, except per ASM amounts)
Total operating expenses	$	34,786		$	38,401
Less: Regional expenses:
Fuel		(1,230	)		(2,009	)
Other		(4,753	)		(4,507	)

Total mainline operating expenses		28,803			31,885
Less: Special items, net		(1,051	)		(800	)

Mainline operating expenses, excluding special items		27,752			31,085
Less: Aircraft fuel and related taxes		(6,226	)		(10,592	)

Mainline operating expenses, excluding special items and fuel	$	21,526		$	20,493

Available Seat Miles (ASM)		239,375			237,522

(In cents)
Mainline operating expenses per ASM		12.03			13.42
Less: Special items, net per ASM		(0.44	)		(0.34	)

Mainline operating expenses per ASM, excluding special items		11.59			13.09
Less: Aircraft fuel and related taxes per ASM		(2.60	)		(4.46	)

Mainline operating expenses per ASM, excluding special items and fuel		8.99			8.63

AAG’s Results of Operations

In 2015, we realized operating income of $6.2 billion and net income of $7.6 billion. Our 2015 net income included net special operating charges of $1.1 billion and total net special credits of $1.3 billion. Excluding the effects of these special charges and credits, we realized operating income of $7.3 billion and net income of $6.3 billion.

In 2014, we realized operating income of $4.2 billion and net income of $2.9 billion. Our 2014 net income included net special operating charges of $824 million and total net special charges of $1.3 billion. Excluding the effects of these special charges, we realized operating income of $5.1 billion and net income of $4.2 billion.

We completed the Merger on December 9, 2013. Under GAAP, AAG’s results do not include the financial results of US Airways Group prior to the closing of the Merger. Accordingly, our 2014 period GAAP results are not comparable to the GAAP results for 2013 as 2013 excludes the results of US Airways Group except for the 23 day post-Merger period from December 9, 2013 to December 31, 2013.

In 2013, we realized operating income of $1.4 billion and net loss of $1.8 billion. Our 2013 net income included net special operating charges of $536 million and total net special charges of $3.1 billion. Excluding the effects of these special charges, we realized operating income of $1.9 billion and net income of $1.2 billion.

The components of total net special charges (credits) in our accompanying consolidated statements of operations are as follows (in millions):


	Year Ended December 31,
	2015			2014		2013
Other revenue special item, net (1)	$	—		$	—	$	(31	)
Mainline operating special items, net (2)		1,051			800		559
Regional operating special items, net (3)		29			24		8
Nonoperating special items, net (4)		594			132		211
Reorganization items, net (5)		—			—		2,655
Income tax special items, net (6)		(3,015	)		346		(324	)

Total	$	(1,341	)	$	1,302	$	3,078

(1)	In 2013, other revenue special item, net included a credit to other revenues related to a change in accounting method resulting from the modification of American’s AAdvantage miles agreement with Citibank.

(2)

In 2015, mainline operating special items, net principally included $1.0 billion of merger integration expenses related to information technology, alignment of labor union contracts, professional fees, severance, share-based compensation, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training.

In 2014, mainline operating special items, net principally included $810 million of merger integration expenses related to information technology, alignment of labor union contracts, professional fees, severance and retention, share-based compensation, divestiture of London Heathrow slots, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training. In addition, we recorded a net charge of $81 million for bankruptcy related items principally consisting of fair value adjustments for bankruptcy settlement obligations and an $81 million charge to revise prior estimates of certain aircraft residual values and other spare parts asset impairments. These charges were offset in part by a $309 million gain on the sale of slots at DCA.

In 2013, mainline operating special items, net included $443 million of merger related expenses related to the alignment of labor union contracts, professional fees, severance, share-based compensation and fees for US Airways to exit the Star Alliance and its codeshare agreement with United Airlines. In addition, we recorded a $107 million charge related to American’s pilot long-term disability obligation, a $43 million charge for workers’ compensation claims and a $33 million aircraft impairment charge. These charges were offset in part by a $67 million gain on the sale of slots at LGA.

(3)	The 2015 regional operating special items, net principally related to merger integration expenses.

The 2014 regional operating special items, net consisted primarily of a $24 million charge due to a new pilot labor contract at our Envoy regional subsidiary as well as $7 million of merger integration expenses, offset in part by an $8 million gain on the sale of certain spare parts.

(4)	In 2015, nonoperating special items, net principally included a $592 million charge to write off all of the value of Venezuelan bolivars held by us due to continued lack of repatriations and deterioration of economic conditions in Venezuela.

In 2014, nonoperating special items, net principally included a $43 million charge for Venezuelan foreign currency losses, $56 million of early debt extinguishment costs primarily related to the prepayment of 7.50% senior secured notes and other indebtedness and $33 million of non-cash interest accretion on bankruptcy settlement obligations.

In 2013, nonoperating special items, net consisted of interest charges of $138 million primarily to recognize post-petition interest expense on unsecured obligations pursuant to the Plan and penalty interest related to 10.5% secured notes and 7.50% senior secured notes, a $54 million charge related to the premium on tender for existing EETC financings and the write-off of debt issuance costs and $19 million in charges related to the repayment of existing EETC financings.

(5)	In 2013, we recognized reorganization expenses as a result of the filing of voluntary petitions for relief under Chapter 11. These amounts consisted primarily of estimated allowed claim amounts and professional fees.

(6)

In 2015, income tax special items totaled a net credit of $3.0 billion. In connection with the preparation of our financial statements for the fourth quarter of 2015, we determined that it was more likely than not that substantially all of our deferred tax assets, which include our NOLs, would be realized. Accordingly, we reversed $3.0 billion of the valuation allowance as of December 31, 2015, which resulted in a special $3.0 billion non-cash tax benefit recorded in the consolidated statement of operations for 2015.

In 2014, income tax special items, net were $346 million. During 2014, we sold our portfolio of fuel hedging contracts that were scheduled to settle on or after June 30, 2014. In connection with this sale, we recorded a special non-cash tax provision of $330 million in the second quarter of 2014 that reversed the non-cash tax provision which was recorded in other comprehensive income (OCI), a subset of stockholders’ equity, principally in 2009. This provision represents the tax effect associated with gains recorded in OCI principally in 2009 due to a net increase in the fair value of our fuel hedging contracts. In accordance with GAAP, we retained the $330 million tax provision in OCI until the last contract was settled or terminated.

In 2013, income tax special items, net included a $538 million non-cash income tax benefit from continuing operations. We are required to consider all items (including items recorded in OCI) in determining the amount of tax benefit that results from a loss from continuing operations and that should be allocated to continuing operations. As a result, we recorded a tax benefit on the loss from continuing operations for the year, which was exactly offset by income tax expense on OCI. However, while the income tax benefit from continuing operations is reported on the income statement, the income tax expense on OCI is recorded directly to accumulated other comprehensive income (loss), which is a component of stockholders’ equity. Because the income tax expense on OCI is equal to the income tax benefit from continuing operations, our year-end net deferred tax position is not impacted by this tax allocation. The 2013 tax benefit was offset in part by a $214 million tax charge attributable to additional valuation allowance required to reduce deferred tax assets to the amount we believed was more likely than not to be realized.

Income Taxes

At December 31, 2015, we had approximately $8.0 billion of gross NOL Carryforwards to reduce future federal taxable income, substantially all of which are expected to be available for use in 2016. The federal NOL Carryforwards will expire beginning in 2023 if unused. These NOL Carryforwards include an unrealized tax benefit of $1.2 billion related to share-based compensation that will be recorded in equity when realized. We also had approximately $4.0 billion of NOL Carryforwards to reduce future state taxable income at December 31, 2015, which will expire in years 2016 through 2034 if unused. Our ability to deduct our NOL Carryforwards and to utilize certain other available tax attributes can be substantially constrained under the general annual limitation rules of Section 382 where an “ownership change” has occurred. We experienced an ownership change in connection with our emergence from the Chapter 11 Cases, and US Airways Group experienced an ownership change in connection with the Merger. As a result of the Merger, US Airways Group is now included in the AAG consolidated federal and state income tax returns. The general limitation rules of Section 382 for a debtor in a bankruptcy case are liberalized where the ownership change occurs upon emergence from bankruptcy. We elected to be covered by certain special rules for federal income tax purposes that permitted approximately $9.0 billion (with $6.6 billion of unlimited NOL remaining at December 31, 2015) of our federal NOL Carryforwards to be utilized without regard to the Section 382 annual limitation rules unless a second ownership change occurred on or before December 9, 2015. No second ownership change occurred within that period. Substantially all of our remaining federal NOL Carryforwards (attributable to US Airways Group) are subject to limitation under Section 382; however, our ability to utilize such NOL Carryforwards is not anticipated to be effectively constrained as a result of such limitation. Similar limitations may apply for state income tax purposes. Our ability to utilize any new NOL Carryforwards arising after the ownership changes is not affected by the annual limitation rules imposed by Section 382 unless another ownership change occurs.

At December 31, 2015, we had an Alternative Minimum Tax (AMT) credit carryforward of approximately $341 million available for federal income tax purposes, which is available for an indefinite period.

In connection with the preparation of our financial statements for the fourth quarter of 2015, we determined that it was more likely than not that substantially all of our deferred tax assets, which include our NOLs, would be realized. Accordingly, we reversed $3.0 billion of the valuation allowance as of December 31, 2015, which resulted in a special $3.0 billion non-cash tax benefit recorded in the consolidated statement of operations for 2015.

Beginning in 2016, we expect to record income tax expense with an effective rate of approximately 38%, which will be substantially non-cash as we utilize the NOLs described above to offset cash income taxes due.

For the year ended December 31, 2014, we recorded a $330 million tax provision, which included $346 million of special tax charges as described above.

For the year ended December 31, 2013, we recorded a $346 million tax benefit, which included $324 million of net special tax benefits as described above.

Operating Statistics

The table below sets forth selected mainline and regional operating data for the years ended December 31, 2015 and 2014. Operating statistics for the year ended December 31, 2013 have not been included because they would not be comparable to the years ended December 31, 2015 or 2014 due to US Airways Group results only being included for 23 days ended December 31, 2013.


	Year Ended December 31,				Increase (Decrease) 2015-2014
	Year Ended December 31,
	2015		2014
Mainline
Revenue passenger miles (millions) (a)		199,467		195,651		2.0	%
Available seat miles (millions) (b)		239,375		237,522		0.8	%
Passenger load factor (percent) (c)		83.3		82.4		0.9	pts
Yield (cents) (d)		14.56		15.74		(7.5	)%
Passenger revenue per available seat mile (cents) (e)		12.13		12.97		(6.5	)%
Operating cost per available seat mile (cents) (f)		12.03		13.42		(10.4	)%
Passenger enplanements (thousands) (g)		146,814		145,574		0.9	%
Departures (thousands)		1,114		1,144		(2.6	)%
Aircraft at end of period		946		983		(3.8	)%
Block hours (thousands) (h)		3,494		3,514		(0.6	)%
Average stage length (miles) (i)		1,226		1,205		1.7	%
Fuel consumption (gallons in millions)		3,611		3,644		(0.9	)%
Average aircraft fuel price including related taxes (dollars per gallon)		1.72		2.91		(40.7	)%
Full-time equivalent employees at end of period		98,900		94,400		4.8	%
Regional (j)
Revenue passenger miles (millions) (a)		23,543		22,219		6.0	%
Available seat miles (millions) (b)		29,361		28,135		4.4	%
Passenger load factor (percent) (c)		80.2		79.0		1.2	pts
Yield (cents) (d)		27.50		28.46		(3.3	)%
Passenger revenue per available seat mile (cents) (e)		22.05		22.47		(1.9	)%
Operating cost per available seat mile (cents) (f)		20.38		23.16		(12.0	)%
Passenger enplanements (thousands) (g)		54,435		51,766		5.2	%
Aircraft at end of period		587		566		3.7	%
Fuel consumption (gallons in millions)		712		688		3.6	%
Average aircraft fuel price including related taxes (dollars per gallon)		1.73		2.92		(40.9	)%
Full-time equivalent employees at end of period (k)		19,600		18,900		3.7	%
Total Mainline and Regional
Revenue passenger miles (millions) (a)		223,010		217,870		2.4	%
Available seat miles (millions) (b)		268,736		265,657		1.2	%
Cargo ton miles (millions) (l)		2,314		2,333		(0.8	)%
Passenger load factor (percent) (c)		83.0		82.0		1.0	pts
Yield (cents) (d)		15.92		17.04		(6.5	)%
Passenger revenue per available seat mile (cents) (e)		13.21		13.97		(5.4	)%
Total revenue per available seat mile (cents)		15.25		16.05		(5.0	)%
Cargo yield per ton mile (cents) (m)		32.84		37.50		(12.4	)%
Passenger enplanements (thousands) (g)		201,249		197,340		2.0	%
Aircraft at end of period		1,533		1,549		(1.0	)%
Fuel consumption (gallons in millions)		4,323		4,332		(0.2	)%
Average aircraft fuel price including related taxes (dollars per gallon)		1.72		2.91		(40.7	)%
Full-time equivalent employees at end of period		118,500		113,300		4.6	%

(a)	Revenue passenger mile (RPM) – A basic measure of sales volume. One RPM represents one passenger flown one mile.

(b)	Available seat mile (ASM) – A basic measure of production. One ASM represents one seat flown one mile.

(c)	Passenger load factor – The percentage of available seats that are filled with revenue passengers.

(d)	Yield – A measure of airline revenue derived by dividing passenger revenue by RPMs.

(e)	Passenger revenue per available seat mile (PRASM) – Passenger revenues divided by ASMs.

(f)	Operating cost per available seat mile (CASM) – Operating expenses divided by ASMs.

(g)	Passenger enplanements – The number of passengers on board an aircraft, including local, connecting and through passengers.

(h)	Block hours – The hours measured from the moment an aircraft first moves under its own power, including taxi time, for the purposes of flight until the aircraft is docked at the next point of landing and its power is shut down.

(i)	Average stage length – The average of the distances flown on each segment of every route.

(j)

Regional statistics include our subsidiaries, Envoy Aviation Group Inc. (Envoy), Piedmont Airlines, Inc. (Piedmont) and PSA Airlines, Inc. (PSA), and operating statistics from our capacity purchase agreements with Air Wisconsin Airlines Corporation, Chautauqua Airlines, Inc., ExpressJet Airlines, Inc., Mesa Airlines, Inc., Republic Airline Inc., SkyWest Airlines, Inc., Compass Airlines, LLC and Trans States Airlines, Inc.

(k)	Regional full-time equivalent employees only include our wholly-owned regional airline subsidiaries, Envoy, Piedmont and PSA.

(l)	Cargo ton miles – A basic measure of cargo transportation. One cargo ton mile represents one ton of cargo transported one mile.

(m)	Cargo yield per ton mile – Cargo revenues divided by total mainline and regional cargo ton miles.

2015 Compared to 2014

Operating Revenues


	Year Ended December 31,				Percent Increase (Decrease)
	2015		2014		Percent Increase (Decrease)
	(In millions, except percentage changes)
Mainline passenger	$	29,037	$	30,802		(5.7	)
Regional passenger		6,475		6,322		2.4
Cargo		760		875		(13.1	)
Other		4,718		4,651		1.4

Total operating revenues	$	40,990	$	42,650		(3.9	)

Total operating revenues in 2015 decreased $1.7 billion, or 3.9%, from 2014 principally due to competitive growth and weaker international yields primarily due to foreign currency devaluation relative to the U.S. dollar. Significant changes in the components of operating revenues are as follows:

•

Mainline passenger revenues were $29.0 billion in 2015 as compared to $30.8 billion in 2014. Mainline RPMs increased 2.0% as mainline capacity, as measured by ASMs, increased 0.8%, resulting in a 0.9 point increase in load factor to 83.3%. Mainline passenger yield decreased 7.5% to 14.56 cents in 2015 from 15.74 cents in 2014. Mainline PRASM decreased 6.5% to 12.13 cents in 2015 from 12.97 cents in 2014.

•

Regional passenger revenues were $6.5 billion in 2015 as compared to $6.3 billion in 2014. Regional RPMs increased 6.0% as regional capacity, as measured by ASMs, increased 4.4%, resulting in a 1.2

point increase in load factor to 80.2%. Regional passenger yield decreased 3.3% to 27.50 cents in 2015 from 28.46 cents in 2014. Regional PRASM decreased 1.9% to 22.05 cents in 2015 from 22.47 cents in 2014.

•

Cargo revenue decreased $115 million, or 13.1%, in 2015 from 2014 driven primarily by a decrease in international freight yields.

Operating Expenses


	Year Ended December 31,				Percent Increase (Decrease)
	2015		2014		Percent Increase (Decrease)
	(In millions, except percentage changes)
Aircraft fuel and related taxes	$	6,226	$	10,592		(41.2	)
Salaries, wages and benefits		9,524		8,508		11.9
Maintenance, materials and repairs		1,889		2,051		(7.9	)
Other rent and landing fees		1,731		1,727		0.2
Aircraft rent		1,250		1,250		—
Selling expenses		1,394		1,544		(9.8	)
Depreciation and amortization		1,364		1,295		5.4
Special items, net		1,051		800		31.3
Other		4,374		4,118		6.2

Total mainline operating expenses		28,803		31,885		(9.7	)
Regional expenses:
Fuel		1,230		2,009		(38.8	)
Other		4,753		4,507		5.4

Total regional operating expenses		5,983		6,516		(8.2	)

Total operating expenses	$	34,786	$	38,401		(9.4	)

Total operating expenses were $34.8 billion in 2015, a decrease of $3.6 billion, or 9.4%, from 2014. The decrease in operating expenses was primarily due to substantially lower aircraft fuel costs, offset in part by higher salaries, wages and benefits driven by new merger related labor contracts. See detailed explanations below relating to changes in operating costs per ASM.

Mainline Operating Expenses per ASM

Our mainline CASM decreased 1.39 cents, or 10.4%, from 13.42 cents in 2014 to 12.03 cents in 2015 on 0.8% increase in capacity primarily due to lower fuel prices. Excluding special items and aircraft fuel and related taxes, our mainline CASM increased 0.36 cents, or 4.2%, from 8.63 cents in 2014 to 8.99 cents in 2015, primarily due to higher salaries, wages and benefits due to new merger related labor contracts.

The table below sets forth the major components of our total mainline CASM and our mainline CASM excluding special items and aircraft fuel and related taxes for the year ended December 31, 2015 and 2014:


	Year Ended December 31,						Percent Increase (Decrease)
	2015			2014			Percent Increase (Decrease)
	(In cents, except percentage changes)
Mainline CASM:
Aircraft fuel and related taxes		2.60			4.46			(41.7	)
Salaries, wages and benefits		3.98			3.58			11.1
Maintenance, materials and repairs		0.79			0.86			(8.6	)
Other rent and landing fees		0.72			0.73			(0.5	)
Aircraft rent		0.52			0.53			(0.8	)
Selling expenses		0.58			0.65			(10.5	)
Depreciation and amortization		0.57			0.55			4.6
Special items, net		0.44			0.34			30.3
Other		1.83			1.73			5.4

Total mainline CASM		12.03			13.42			(10.4	)
Special items, net		(0.44	)		(0.34	)		30.3
Aircraft fuel and related taxes		(2.60	)		(4.46	)		(41.7	)

Mainline operating expenses per ASM, excluding special items and aircraft fuel and related taxes (1)		8.99			8.63			4.2

(1)

We believe that the presentation of mainline CASM excluding fuel is useful to investors because both the cost and availability of fuel are subject to many economic and political factors beyond our control, and the exclusion of special items provides investors the ability to measure financial performance in a way that is more indicative of our ongoing performance and that is more comparable to measures reported by other major airlines. Management uses mainline CASM excluding special items and fuel to evaluate our operating performance. Amounts may not recalculate due to rounding.

Significant changes in the components of mainline operating expense per ASM are as follows:

•

Aircraft fuel and related taxes per ASM decreased 41.7% primarily due to a 40.7% decrease in the average price per gallon of fuel to $1.72 in 2015 from an average price per gallon of $2.91 in 2014.

•

Salaries, wages and benefits per ASM increased 11.1% primarily due to increased costs associated with the new, merger related pilot, flight attendant and customer service and reservation agent joint collective bargaining agreements.

•

Maintenance, materials and repairs per ASM decreased 8.6% primarily due to fewer engine overhauls in 2015, driven by our fleet renewal program.

•

Selling expenses per ASM decreased 10.5% primarily due to lower contractually negotiated rates for certain commissions and booking fees as well as lower revenues in 2015.

•

Other operating expenses per ASM increased 5.4% in 2015 as compared to 2014 primarily due to increases in crew travel and certain information technology projects, as well as enhancements to our aircraft food and catering offerings.

Regional Operating Expenses

Total regional expenses decreased $533 million, or 8.2%, in 2015 to $6.0 billion from $6.5 billion in 2014. The year-over-year decrease was primarily due to a $779 million, or 38.8%, decrease in fuel costs, offset in part by a $246 million, or 5.4%, increase in other regional operating expenses. The average price per gallon of fuel decreased 40.9% to $1.73 in 2015 from $2.92 in 2014. The increase in other regional operating expenses was principally due to increased flying under capacity purchase agreements.

Nonoperating Income (Expense)


	Year Ended December 31,						Percent Increase (Decrease)
	2015			2014			Percent Increase (Decrease)
	(In millions, except percentage changes)
Interest income	$	39		$	31			26.0
Interest expense, net of capitalized interest		(880	)		(887	)		(0.8	)
Other, net		(747	)		(181	)		nm

Total nonoperating expense, net	$	(1,588	)	$	(1,037	)		53.1

Our short-term investments in each period consisted of highly liquid investments that provided nominal returns.

The following table provides the components of interest expense:


	Year Ended December 31,						Increase (Decrease)
	2015			2014			Increase (Decrease)
	(In millions)
Special items, net	$	—		$	33		$	(33	)
Amortization of debt issuance costs and debt discounts		42			39			3
Interest expense on debt and capital lease obligations		890			876			14

Total interest expense		932			948			(16	)
Less: capitalized interest		(52	)		(61	)		9

Total interest expense, net of capitalized interest	$	880		$	887		$	(7	)

Other nonoperating expense, net in 2015 included a net $594 million in other nonoperating special charges and $159 million of foreign currency losses. The other nonoperating special charges were primarily due to a $592 million write off of all of the value of Venezuelan bolivars held by us due to continued lack of repatriations and deterioration of economic conditions in Venezuela and $41 million in charges principally related to non-cash write offs of unamortized debt discount and debt issuance costs associated with refinancing certain of our secured term loan facilities, prepayments of certain aircraft financings and the purchase and subsequent remarketing of certain special facility revenue bonds. These charges were offset in part by a $22 million gain associated with the sale of an investment and a $17 million early debt extinguishment gain associated with the repayment of American’s AAdvantage loan with Citibank. The foreign currency losses were driven primarily by the strengthening of the U.S. dollar relative to other currencies during 2015, principally in Latin American and European markets, including a 34% decrease in the value of the Argentinian peso, a 30% decrease in the value of the Brazilian real, a 14% decrease in the value of the Mexican peso, a 10% decrease in the value of the Euro and a 5% decrease in the value of the British pound.

Other nonoperating expense, net in 2014 consisted of $114 million of net foreign currency losses, including a $43 million special charge for Venezuelan foreign currency losses, and $56 million in other nonoperating special charges primarily due to early debt extinguishment costs related to the prepayment of our 7.50% senior secured notes and other indebtedness. The foreign currency losses were driven primarily by the strengthening of the U.S. dollar relative to other currencies during 2014, principally in the Latin American market, including a 48% decrease in the value of the Venezuelan bolivar and a 14% decrease in the value of the Brazilian real.

2014 Compared to 2013

Operating Revenues


	Year Ended December 31,				$ Change		$ Change due to Merger		Change Excluding Merger Impact
	2014		2013		$ Change		$ Change due to Merger		$			%
	(In millions, except percentage changes)
Mainline passenger	$	30,802	$	20,218	$	10,584	$	9,833	$	751			3.8
Regional passenger		6,322		3,131		3,191		3,207		(16	)		(0.5	)
Cargo		875		685		190		149		41			6.1
Other		4,651		2,709		1,942		1,318		624			23.9

Total operating revenues	$	42,650	$	26,743	$	15,907	$	14,507	$	1,400			5.4

The following discussion of operating revenues excludes the results of the Merger in order to provide a more meaningful year-over-year comparison.

Total operating revenues in 2014 increased $1.4 billion, or 5.4%, from 2013, which was driven by strong demand for air travel. Significant changes in the components of operating revenues, excluding the results of the Merger, are as follows:

•

Mainline passenger revenues increased $751 million, or 3.8%, in 2014 from 2013 due to higher yields and ASMs, offset in part by slightly lower load factors.

•

Cargo revenues increased $41 million, or 6.1%, in 2014 from 2013 driven primarily by an increase in international freight volumes.

•

Other revenues increased $624 million, or 23.9%, in 2014 from 2013 driven primarily by higher revenues associated with our loyalty programs driven by our affinity card agreement with Citibank.

Operating Expenses


	Year Ended December 31,				$ Change		$ Change due to Merger			Change Excluding Merger Impact
	2014		2013		$ Change		$ Change due to Merger			$			%
	(In millions, except percentage changes)
Aircraft fuel and related taxes	$	10,592	$	7,839	$	2,753	$	3,190		$	(437	)		(5.7	)
Salaries, wages and benefits		8,508		5,460		3,048		2,653			395			7.5
Maintenance, materials and repairs		2,051		1,260		791		679			112			9.2
Other rent and landing fees		1,727		1,152		575		547			28			2.5
Aircraft rent		1,250		768		482		365			117			15.7
Selling expenses		1,544		1,158		386		424			(38	)		(3.3	)
Depreciation and amortization		1,295		853		442		375			67			7.9
Special items, net		800		559		241		(1	)		242			86.2
Other		4,118		2,969		1,149		1,079			70			2.4

Total mainline operating expenses	$	31,885	$	22,018	$	9,867	$	9,311		$	556			2.6
Regional expenses:
Fuel		2,009		1,120		889		947			(58	)		(5.4	)
Other		4,507		2,206		2,301		2,158			143			7.0

Total regional operating expenses		6,516		3,326		3,190		3,105			85			2.8

Total operating expenses	$	38,401	$	25,344	$	13,057	$	12,416		$	641			2.6

The following discussion of operating expenses excludes the results of the Merger in order to provide a more meaningful year-over-year comparison.

Total operating expenses in 2014 increased $641 million, or 2.6%, from 2013. Significant changes in the components of mainline operating expenses, excluding the results of the Merger, are as follows:

•

Aircraft fuel and related taxes decreased $437 million, or 5.7%, in 2014 from 2013 primarily due to a decrease in the average price per gallon of fuel.

•

Salaries, wages and benefits increased $395 million, or 7.5%, in 2014 from 2013 primarily due to increased costs associated with merger related labor contracts.

•

Maintenance, materials and repairs increased $112 million, or 9.2%, in 2014 from 2013 primarily due to an increase in the rate per engine overhaul.

•

Aircraft rent increased $117 million, or 15.7%, in 2014 from 2013 primarily as a result of new leased aircraft deliveries in 2014 as we continued our fleet renewal program.

•

Depreciation and amortization increased $67 million, or 7.9%, in 2014 from 2013 primarily as a result of new purchased aircraft deliveries since the end of 2013 as we continued our fleet renewal program.

Regional Operating Expenses

Total regional expenses, excluding the results of the Merger, increased $85 million, or 2.8%, in 2014 from 2013. Other regional operating expenses increased $143 million, or 7.0%, primarily due to higher expenses associated with certain capacity purchase agreements, offset by a $58 million, or 5.4%, decrease in fuel costs as a result of a decrease in the average price per gallon of fuel.

Nonoperating Income (Expense)


	Year Ended December 31,						$ Change			$ Change due to Merger			Change Excluding Merger Impact
	2014			2013			$ Change			$ Change due to Merger			$			%
	(In millions, except percentage changes)
Interest income	$	31		$	20		$	11		$	6		$	5			25.2
Interest expense, net of capitalized interest		(887	)		(856	)		(31	)		(280	)		249			(29.8	)
Other, net		(181	)		(88	)		(93	)		(29	)		(64	)		73.1

Total nonoperating expense, net	$	(1,037	)	$	(924	)	$	(113	)	$	(303	)	$	190			(21.0	)

Interest income was $31 million and $20 million in 2014 and 2013, respectively. Our short-term investments in each period consisted of highly liquid investments, which provided nominal returns.

The following table provides the components of interest expense:


	Year Ended December 31,						Increase (Decrease)
	2014			2013			Increase (Decrease)
	(In millions)
Special items (1)	$	33		$	182		$	(149	)
Amortization of debt issuance costs and debt discounts		38			33			5
Interest expense on debt and capital lease obligations (2)		568			668			(100	)

Total interest expense		639			883			(244	)
Less: capitalized interest		(53	)		(48	)		(5	)

Total interest expense, net of capitalized interest		586			835			(249	)
US Airways Group total interest expense, net of capitalized interest		301			21			280

Total AAG interest expense, net of capitalized interest	$	887		$	856		$	31

The following discussion of nonoperating income and expense excludes the results of the Merger in order to provide a more meaningful year-over-year comparison.

Interest expense, net of capitalized interest decreased $249 million in 2014 from 2013 primarily due to a $149 million decrease in special charges recognized year-over-year as further described below, as well as refinancing activities that resulted in $100 million less interest expense recognized in 2014.

(1)

In 2014, we recognized $33 million of special charges relating to non-cash interest accretion on bankruptcy settlement obligations. In 2013, we recognized $138 million of special charges relating to post-petition interest expense on unsecured obligations pursuant to the Plan and penalty interest related to American’s 10.5% secured notes and 7.50% senior secured notes. In addition, in 2013 we recorded special charges of $44 million for debt extinguishment costs incurred as a result of the repayment of certain aircraft secured indebtedness, including cash interest charges and non-cash write offs of unamortized debt issuance costs.

(2)	As a result of the 2013 refinancing activities and the early extinguishment of American’s 7.50% senior secured notes in 2014, we recognized $100 million less interest expense in 2014 as compared to 2013.

Other nonoperating expense, net in 2013 consisted principally of net foreign currency losses of $56 million and early debt extinguishment charges of $29 million.

Reorganization Items, Net

Reorganization items refer to revenues, expenses (including professional fees), realized gains and losses and provisions for losses that are realized or incurred as a direct result of the Chapter 11 Cases. The following table summarizes the components included in reorganization items, net on AAG’s consolidated statement of operations for the year ended December 31, 2013 (in millions):


	2013
Labor-related deemed claim (1)	$	1,733
Aircraft and facility financing renegotiations and rejections (2), (3)		325
Fair value of conversion discount (4)		218
Professional fees		199
Other		180

Total reorganization items, net	$	2,655

(1)

In exchange for employees’ contributions to the successful reorganization, including agreeing to reductions in pay and benefits, we agreed in the Plan to provide each employee group a deemed claim, which was used to provide a distribution of a portion of the equity of the reorganized entity to those employees. Each employee group received a deemed claim amount based upon a portion of the value of cost savings provided by that group through reductions to pay and benefits as well as through certain work rule changes. The total value of this deemed claim was approximately $1.7 billion.

(2)

Amounts include allowed claims (claims approved by the Bankruptcy Court) and estimated allowed claims relating to (i) the rejection or modification of financings related to aircraft and (ii) entry of orders treated as unsecured claims with respect to facility agreements supporting certain issuances of special facility revenue bonds. The Debtors recorded an estimated claim associated with the rejection or modification of a financing

or facility agreement when the applicable motion was filed with the Bankruptcy Court to reject or modify such financing or facility agreement and the Debtors believed that it was probable the motion would be approved, and there was sufficient information to estimate the claim. See Note 2 to AAG’s Consolidated Financial Statements in Part II, Item 8A for further information.

(3)

Pursuant to the Plan, the Debtors agreed to allow certain post-petition unsecured claims on obligations. As a result, during the year ended December 31, 2013, we recorded reorganization charges to adjust estimated allowed claim amounts previously recorded on rejected special facility revenue bonds of $180 million, allowed general unsecured claims related to the 1990 and 1994 series of special facility revenue bonds that financed certain improvements at JFK, and rejected bonds that financed certain improvements at ORD, which are included in the table above.

(4)	The Plan allowed unsecured creditors receiving AAG Series A Preferred Stock a conversion discount of 3.5%. Accordingly, we recorded the fair value of such discount upon the confirmation of the Plan by the Bankruptcy Court.

American’s Results of Operations

On December 30, 2015, in order to simplify AAG’s internal corporate structure and as part of the integration efforts following the business combination of AAG and US Airways Group, US Airways merged with and into American, with American as the surviving corporation. As a result of the merger of US Airways and American, US Airways transferred all of its assets, liabilities and off-balance sheet commitments to American. For financial reporting purposes, this transaction constituted a transfer of assets between entities under common control and was accounted for at historical cost. As a result, American’s consolidated financial statements as well as this management’s discussion and analysis of financial condition and results of operations in this Annual Report on Form 10-K (unless otherwise indicated) are presented as though the transaction had occurred on December 9, 2013, when a subsidiary of AMR merged with and into US Airways Group, which represents the earliest date that American and US Airways were under common control. Thus, the full years of 2015 and 2014 and the period from December 9, 2013 to December 31, 2013 are comprised of the financial data of American and US Airways. The periods prior to December 9, 2013 are comprised of the financial data of American only.

In 2015, American realized operating income of $6.2 billion and net income of $8.1 billion. American’s 2015 net income included net special operating charges of $1.1 billion and total net special credits of $1.8 billion. Excluding the effects of these special charges and credits, American realized operating income of $7.3 billion and net income of $6.3 billion.

In 2014, American realized operating income of $4.3 billion and net income of $2.9 billion. American’s 2014 net income included net special operating charges of $788 million and total net special charges of $1.3 billion. Excluding the effects of these special charges, American realized operating income of $5.1 billion and net income of $4.2 billion.

In 2013, American realized operating income of $1.4 billion and a net loss of $1.7 billion. American’s 2013 net loss included net special operating charges of $528 million and total net special charges of $3.0 billion. Excluding the effects of these charges, American realized operating income of $1.9 billion and net income of $1.2 billion.

The components of American’s total net special charges (credits) included in American’s accompanying consolidated statements of operations are as follows (in millions):


	Year Ended December 31,
	2015			2014		2013
Other revenue special item, net (1)	$	—		$	—	$	(31	)
Mainline operating special items, net (2)		1,051			783		559
Regional operating special items, net (3)		18			5		—
Nonoperating special items, net (4)		616			128		121
Reorganization items, net (5)		—			—		2,640
Income tax special items, net (6)		(3,468	)		344		(324	)

Total	$	(1,783	)	$	1,260	$	2,965

(1)	In 2013, other revenue special item, net included a credit to other revenues related to a change in accounting method resulting from the modification of American’s AAdvantage miles agreement with Citibank.

(2)

In 2014, mainline operating special items, net principally included $803 million of merger integration expenses related to information technology, alignment of labor union contracts, professional fees, severance and retention, share-based compensation, divestiture of London Heathrow slots, fleet restructuring, re-branding of aircraft and airport facilities, relocation and training. In addition, American recorded a net charge of $60 million for bankruptcy related items principally consisting of fair value adjustments for bankruptcy settlement obligations and an $81 million charge to revise prior estimates of certain aircraft residual values and other spare parts asset impairments. These charges were offset in part by a $309 million gain on the sale of slots at DCA.

In 2013, mainline operating special items, net principally included $443 million of merger related expenses related to the alignment of labor union contracts, professional fees, severance, share-based compensation and fees for US Airways to exit the Star Alliance and its codeshare agreement with United Airlines. In addition, American recorded a $107 million charge related to American’s pilot long-term disability obligation, a $43 million charge for workers’ compensation claims and a $33 million aircraft impairment charge. These charges were offset in part by a $67 million gain on the sale of slots at LGA.

(3)	The 2015 and 2014 regional operating special items, net principally related to merger integration expenses.

(4)	In 2015, nonoperating special items, net principally included a $592 million charge to write off all of the value of Venezuelan bolivars held by American due to continued lack of repatriations and deterioration of economic conditions in Venezuela.